When we talk about estate planning and preparing for retirement, we often include a discussion on long term care expenses and how to pay for those costs. Many clients believe they have saved sufficient funds for retirement and assume they will never need government assistance. But what happens if your expenses are significantly higher than planned (for example, you or your spouse require expensive long-term care), your investments do not provide as much income as expected, or you simply outlive your money? Even if you never need to apply for Medicaid, it is worth planning as if you might need that kind of assistance.
What is Medicaid?
Medicaid is a state and federal partnership providing medical assistance to those with low income, the elderly, pregnant women, children, and disabled individuals. The program is run by each individual state, so the rules may differ. In 2017 it was estimated that 64% of nursing home residents in North Carolina received Medicaid assistance to pay all or a portion of the cost of care. The Affordable Care Act changed the Medicaid application process and some of the income rules surrounding eligibility. Some states have approved Medicaid expansion, extending the program to additional residents who would not otherwise have any healthcare coverage. As of the date of this writing, the North Carolina General Assembly has not approved Medicaid expansion.
Consider the following situation: A married couple with grown children owns their $350,000 home outright and has $250,000 in retirement savings and investments. One spouse falls ill and is placed in a long-term nursing facility with no expectation he will return home. The average cost for a private room in the U.S. is $8,121 a month. It will not take long to deplete the couple’s savings. When that money is gone, what happens to the spouse who is living in the family home, especially if that spouse ever needs assisted living or nursing care.
The current laws account for this situation to some degree, with a “community spouse resource allowance” that permits a spouse in the home to keep one-half of countable assets limited to a maximum half of $126,420 in 2019 and income assistance for a spouse in the home. In addition, certain assets are “non countable” in the eligibility process, so the primary residence, car, and household goods do not count as assets (there are also some value limits here). Assets owned with another party may also be excluded; for example, if the institutionalized father and the couple’s son purchased a lake home together, the son would not be required to sell the home.
In certain cases, setting up a trust or gifting assets well ahead of the potential need for Medicaid services can help protect your assets and provide for your loved ones. There is a five year lookback period, so the sale or gifting of any assets within that time frame would be subject to review and potentially delay eligibility for assistance. However, there are options for protection that do not create a penalty within the five year lookback. In addition, in certain circumstances, after your death Medicaid may file a claim against your estate to recover expenses paid, although proper planning can avoid this claim.
The rules surrounding Medicaid eligibility and coverage are extremely complex and change regularly. We recommend speaking with an estate planning attorney well versed in Medicaid planning. Schedule an appointment today.