Do you know someone who is in a nursing home? It is one of those situations where we feel “It could never happen to me.” But studies show that approximately two (2) out of every five (5) people reaching age 65 will need some type of long-term care.
Are you one of the many people who would prefer to stay at home no matter what the cost? Without proper planning, the lack of available services and the staggering price-tag may leave you with few alternatives.
The Medicaid Asset Protection Trust
One currently-effective planning technique is to transfer assets into a ‘Medicaid’ trust. In a Medicaid trust, the trust maker retains the right to all of the trust income for life while irrevocably giving up the right to receive or benefit from any of the trust principal.
A Medicaid trust can allow the trustee to distribute principal during the trust maker’s lifetime for the benefit of the trust maker’s spouse, children, or other designated beneficiaries, just not to or for the benefit of the trust maker. Many trust makers choose to maintain the right (called a Special Power of Appointment) to change the current or ultimate beneficiaries of the Medicaid trust by ‘reappointing’ the assets to different family members at a later date.
If a Medicaid trust is not desired, it is still possible to make ‘outright’ gifts of property, wait until the look-back period expires, and then apply for Medicaid or use other planning techniques to qualify for Medicaid at the earliest possible date. This is not the best strategy for low cost basis assets, which would otherwise receive a step-up in basis on death.
Protecting the Home
If the home is the only asset to protect, a Medicaid Asset Protection Trust is often the best strategy to achieve all of the goals a client wishes, such as asset protection; basis step up at death; preservation of capital gains exemptions; the right to reside in the home forever; and protection of the home from the lifetime beneficiary’s creditors.
The downside with this approach is the capital gains exemption will be lost, the home is subject to the creditors of the children, and if sold while the medicaid recipient is alive, will result in much of the proceeds going to the cost of care, rather than to family members.
Even if the need for long-term-care is imminent or immediate, sophisticated Medicaid planning opportunities can be employed to protect a substantial portion of your assets. Carefully working within the Medicaid transfer rules can allow individuals to provide security for themselves and a legacy to their families, while ensuring that they will remain eligible to receive long-term-care under Medicaid when necessary.