If your spouse has a serious medical condition or has been diagnosed with a degenerative disease, you’re likely starting to consider what happens if long-term care is needed. This care can be very expensive (i.e., $4,000-$8,000/month in assisted living, and $12,000-$15,000/month in a nursing home).
Medicaid is a program that could help pay for a portion or all of this care. However, it has strict and complicated financial rules to determine if your spouse qualifies. Also, the Medicaid rules only allow you, as the healthy or community spouse, to keep a modest amount of assets.
Fortunately, planning can be done to financially qualify for Medicaid. Certain Medicaid planning can be done now. Other planning must be done at the time of applying for Medicaid. The remainder of the planning will need to occur between these two times. This is the planning to consider at each of these times:
1. Planning you can do now. If your spouse needs care more than 5 years from now, you could create a Medicaid Protection Trust. Assets transferred to this trust would be protected if it’s done 5 years in advance of applying for Medicaid. You could also create a Spousal Supplemental Needs Trust. This trust is an important part of a plan to avoid having the assets go directly to your spouse if you unexpectedly pass first. If this happens, those assets would need to be spent down until approximately $10,000 to qualify for Medicaid. The Spousal Supplemental Needs Trust will allow those assets to be protected for your spouse. It would also allow your house to be sold after your passing if your spouse couldn’t live there any longer and the sale proceeds would be protected from a Medicaid spend-down.
2. Planning you would do in the future. There is a lot of planning that must be done around the time of filing for Medicaid. This could include setting up a Sole Benefit Trust. This trust is created to protect the assets for you and to allow you to have sufficient assets to live on. Another planning approach is a Medicaid-Compliant Annuity. If your assets are liquid, this planning will create an income stream for you and avoid having to spend those assets down for Medicaid. Finally, you could pursue a protective order or a separate maintenance order.
3. Planning you should do in the meantime. There is also planning that should be done between these two points in time. If you have large IRAs, you could consider taking larger distributions each year. While the distributions would be taxed at that time, doing so could likely avoid a much larger tax bill if you wait to take the needed distributions for the Medicaid planning until at the time when your spouse needs Medicaid. Also, if a family member is starting to help care for your spouse, you could consider a care contract. This would allow you to pay that family member for the care being provided to your spouse. A care contract could be a very beneficial option for a child or other family member who has given up an employment opportunity or isn’t able to work as much due to the care for your spouse. It’s also important to avoid making gifts as much as possible during this time. Gifting within 5 years of applying for Medicaid will create problems with when benefits will start. Lastly, you should start organizing the records and documents that’ll be needed to later apply for Medicaid, and consider reducing the number of financial institutions you work with. The Medicaid application and planning process requires a lot of documentation. Organizing these documents over time and consolidating your accounts will lessen the stress of having to get the needed documentation from many different financial institutions at the time your spouse is placed in assisted living or a nursing home.
If you have any questions about this process or the planning, feel free to contact me at phmulder@cunninghamdalman.com.
