The good news is we live 31 years longer than we did 100 years ago. The bad news is that a longer lifespan increases the likelihood that we will need long-term care, usually in a nursing home, at some point in our lives. In fact, studies indicate that 50% of all US citizens, and 70% of us who live past the age of 65, will need long term care services.
These services are prohibitively expensive and essentially function as a hidden estate tax. Many families are prevented from passing on their assets due to medicaid costs depleting their estate. Utilizing a Medicaid Asset Protection Trust can help ensure you both receive the care you deserve, while preserving your hard earned assets so your children, charity and others may enjoy them as you intend. Please note, this is just one of the many Colorado trusts a family may form.
Long Term Care Costs
An illness requiring long term care can have dire consequences for your family - financially, emotionally, and socially. It is actually the greatest threat to your retirement savings and your loved one's inheritance.
The cost of long-term care varies from state to state, but is on average about $16,000 per year for home care, $48,000 per year for residence in an assisted living facility, and $140,000 per year for residence in a nursing home.
How to Protect Assets from Medicaid
The most effective way to plan is by taking steps to qualify for Medicaid. If you qualify, the government will pay for your health care costs, rather than depleting your estate. The ways we in which we help our clients qualify as are follows. Please note, we generally use a combination of the strategies below in conjunction with a Medicaid Asset Protection Trust (also called an Irrevocable Income Only Trust - or IIOT):
- Medicaid Trust: During your lifetime you control the assets in the trust and may still benefit from them. When you pass away, they are provided to whomever you decide, whether it's family or charity for example. Assets in the trust cannot be taken to pay Medicaid costs. This is the most effective structure as it doesn't rely upon gifting or other strategies that require you to lose control of your assets and depend upon others to do the right thing.
- Spend-Down Strategies: Investing in annuities or paying a caregiver are a few ways to reduce your income and assets to below the required thresholds.
- Long Term Care Insurance: Long term care insurance is usually expensive and the benefits often limited. These limited benefits are rarely enough to cover the entire cost of staying in a long term facility. Some in unique circumstances may find this a viable option, but most clients do not.
- Gifting: This strategy can be appropriate in certain circumstances. However, it's important to note there is a lookback period on gifts, and you formally lose control of the assets. For this reason we don't recommend gifting your home because then you have to depend on others to do the right thing, instead the home should be placed into a trust. Family heirlooms and other similar items can be gifted when appropriate.
Once you are over the age of 65, you can rely upon Medicare for your health care needs, but only to a limited extent. Medicare generally covers skilled nursing home care, but only after a hospital stay of 3 or more days and only up to 100 days. What's more, Medicare generally does not cover time in an assisted living facility.
Medicaid is another government health insurance program. It does pay for long term care, but it is only available to people who are financially needy. Because Medicaid is a need-based program, Medicaid will require you to exhaust your own financial resources before you will be eligible to have Medicaid cover the cost of the care you need.
To be eligible for Medicaid, a single person must have less than $2000 in assets and no more $2313 in monthly income. A married couple must use a specific formula to determine how much of their assets they can keep.
In both cases, the financial requirements mean that many people in need of long term care will have to exhaust their entire life savings before they will qualify for assistance, or choose to do without services that could improve their lives.
The good news, however, is that there is a way to quickly meet Medicaid's eligibility requirements and prevent your entire life saving from being entirely exhausted on the cost of long term care––a Medicaid Trust.
What is a Medicaid Trust?
A Medicaid trust is a type of trust arrangement permitted by federal and state law. Under these laws, funds and asset placed in a Medicaid trust are no longer considered your assets for the purpose of Medicaid eligibility.
An experienced estate planning attorney can help you set up a Medicaid trust. Once the trust is established, income and assets above Medicaid’s threshold limit can be placed in the trust to help you qualify for assistance.
A Medicaid trust is an irrevocable trust, meaning that when you put assets into the trust you relinquish ownership and control over those assets. However, you can still receive income and benefit from the asset. For example, you can place your home in a Medicaid Trust and continue to live in it.
Medicaid Trust Benefits
Utilizing a Medicaid Trust will protect certain assets that may be subject to Medicaid spend down before assistance will be provided. Furthermore, it can enable you to qualify for Medicaid a lot sooner then you otherwise would and long before all of your hard-earned assets are exhausted, leaving nothing left for your spouse and children to live on.
However, your assets must be transferred to Medicaid trust at least 60 months before applying for Medicaid, in order to for your assets to enjoy full protection. Medicaid has a 5-year look back period for asset transfers and gifts.
If you, a friend, or family member reside in Colorado and anticipate needing long term care, but have more than $2000 in assets and receive more $2313 in monthly income, consult with us to determine if a Colorado trust will work for you.