Elder Protection

Elder Protection

Elder Couple on Sailboat
Do you know someone who has spent time in a nursing home? Have you ever thought about going into a nursing home yourself? Most people answer the first question yes, and the second question no. 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.

In New York State, the annual cost of nursing home care ranges from approximately $90,000.00 to over $150,000.00, and it is climbing each year! That is approximately $240.00 to $410.00, per day. If you choose to stay at home, where most of us would prefer to be, and hire home health aides, the cost of your care could be even more. Home health care costs vary widely, but agencies charge anywhere from $18 to $30 per hour for home health aides. In some cases, people pay over $200,000 per year for 24 hour-a-day home care. What many people fail to realize is that their health insurance and Medicare will not cover the cost of long-term care, whether at home, in assisted living or in a nursing facility. Paying for long-term care is a personal responsibility, which has become a primary concern for all age groups across our state and the nation.

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. The assets in the trust are not available to pay for the cost of the trust maker’s LTC.

By using a Medicaid trust, a senior can preserve capital and still qualify for Medicaid, but only after expiration of the look-back period for the transfer to the trust (which can be as much as 60 months (5 years)).

The ‘penalty period’ starts from the date the applicant applies for Medicaid and would be eligible but for the disqualifying transfer. Its length is determined by dividing the state’s average daily private pay nursing home cost into the total of the transfers made during the look-back period.

For the Medicaid trust strategy to work, insurance, an income stream, or other assets must be sufficient to pay for LTC if needed during the waiting period before applying for Medicaid.

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.

To learn more about The Value of Using Irrevocable Trusts in Medicaid Planning click here

Making Gifts

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.  It is extremely important that you consult an attorney prior to making any outright gifts.

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.

Another approach some individuals use is to convey a deed to children or others with a retained life estate for the client. This may protect both the property and the client’s Medicaid eligibility upon expiration of either 60 months from the date of the conveyance or the applicable ‘penalty period.’ As with other advanced planning strategies, because the penalty period begins only after the applicant has applied for Medicaid and is otherwise eligible, other LTC funding should be available to get past the look-back period.  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 LTC 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 LTC under Medicaid when necessary. We look forward to meeting with you to discuss your options.  Contact us today.


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