Using Estate Planning to Prepare for Medicaid

Long-term care involves not only a loss of personal autonomy; it also comes at a tremendous financial price. Proper planning can help your family prepare for the financial toll and protect assets for future generations. 

Long-term care can be very expensive, especially around-the-clock nursing home care. Most people end up paying for nursing home care out of their savings until they run out, at which point they can qualify for Medicaid to pick up the cost. 

Medicaid rules require that recipients have no more than $2,000 in “countable” assets (the figure may be somewhat higher in some states) and limited income. Any excess assets need to be spent down before you can qualify for Medicaid. In addition, in order to be eligible for Medicaid, you cannot have recently transferred assets. If you transfer assets within five years of applying for Medicaid, you may be subject to a penalty period during which you cannot receive benefits. After you die, Medicaid also has the right to recover from your estate, which in the case of a Medicaid recipient usually means only the house.

Careful planning in advance can help protect your estate for your spouse or children. If you make a plan before you need long-term care, you may have the luxury of distributing or protecting your assets in advance. This way, when you do need long-term care, you will quickly qualify for Medicaid benefits. The following are some tools that can be used in an estate plan to prepare for Medicaid: 

  • Trusts. One of most important estate planning tools you can use is an “irrevocable” trust — a trust that cannot be changed after it has been created. In most cases, this type of trust is drafted so that the income is payable to you (the person establishing the trust, called the “grantor”) for life, and the principal cannot be applied to benefit you or your spouse. At your death the principal is paid to your heirs. This way, the funds in the trust are protected and you can use the income for your living expenses. For Medicaid purposes, the principal in such trusts is not counted as a resource, provided the trustee cannot pay it to you or your spouse for either of your benefits. However, if you do move to a nursing home, the trust income will have to go to the nursing home. And to avoid Medicaid’s “look-back period,” the trust must be funded at least five years before applying for benefits. For more information on how to use a trust in Medicaid planning, click here
  • Annuities. Annuities are another tool married couples can use to prepare for Medicaid. An immediate annuity, in its simplest form, is a contract with an insurance company under which the policyholder pays a certain lump sum of money to the insurer and the insurer sends the policyholder a monthly check for the rest of his or her life. In Michigan the purchase of an annuity is not considered to be a transfer for purposes of eligibility for Medicaid, as long as it meets certain defined criteria,  but is instead the purchase of an investment or an income stream. However it is essential that you obtain advice from a qualified Elder Law Attorney before purchasing such an annuity to assure that the transaction is handled properly and the annuity meets the Medicaid criteria. When properly used, an actuarially sound annuity can transform an otherwise countable assets into a non-countable income stream. As long as the income is in the name of the spouse who is not in the nursing home, it’s considered non-countable. For single individuals, annuities are less useful, but if you transfer assets, you may be able to use an annuity to pay for long-term care during the Medicaid penalty period that results from the transfer.
  • Protecting your home. After a Medicaid recipient dies, the state must attempt to recoup from his or her estate whatever benefits it paid for the recipient’s care. This is called “estate recovery.” For most Medicaid recipients, their house is the only asset available, but there are steps you can take to protect your home. Putting your house in a trust can be a good option, but once a house is placed in an irrevocable trust, you cannot remove it. Another option is a life estate, which is a form of joint ownership of property between two or more people. They each have an ownership interest in the property, but for different periods of time. The person holding the life estate possesses the property currently and for the rest of his or her life. The other owner has a current ownership interest but cannot take possession until the end of the life estate, which occurs at the death of the life estate holder.

Talk to us about the many options and strategies that are available to provide for Medicaid assistance even before it is needed. You can call us at (989) 355-6128 to schedule a Long-Term Care Consultation with attorney Karen Jo Bennett and Elder Law Paralegal Julie Elowsky.

If you have specific questions about your situation or would like to learn more, reach out to the team at WBH here.

Read more articles:

Start 2023 Prepared: Reassess What Matters Most

If we have learned anything these past few years, it’s that life is fleeting. Amid such uncertain times, many of us have realized what – and who – truly means the most to us. Estate planning allows you to reflect on your family, your priorities, and what actions you...

Should You Prepare a Medicaid Application Yourself?

Navigating the Medicaid application process can be complicated, especially if you are applying for long-term care benefits. Hiring an attorney to help you through the process can be extremely helpful. Whether you should prepare and file a Medicaid application by...

What Are the Drawbacks of Naming Beneficiaries?

Although in many situations the advantages outweigh the disadvantages when selecting beneficiaries, there are always exceptions. What Is a Beneficiary? Beneficiaries are individuals who you select to receive money, various other assets, or specific bequests (such as...

Why Hire an Elder Law Attorney?

Elder law attorneys may specialize in estate planning, incapacity planning, and end-of-life care for seniors. They also help older adults remain in their homes as they age and protect them from abuse.      These practitioners are essential because they work to protect...

Why You May Need a Trust in Addition to a Power of Attorney

While everyone should have a durable power of attorney that appoints someone to act for them if they become incapacitated, in some circumstances, it is not enough. In these cases, a revocable trust can help.  A durable power of attorney allows you to appoint someone...

You Can Just Say No: Declining to Act as an Agent Under a Power of Attorney

Acting as an agent under a power of attorney is a big responsibility and it isn’t something everyone can take on. It is possible to resign or refuse the position. There are two main types of powers of attorney – financial and medical. As the agent under a power of...

Step-Up in Basis and Why It Matters in Estate Planning

Recent news stories may have made you aware of the “step-up in basis” and the current administration’s desire to eliminate or adjust it. If you are considering engaging in estate planning or you may be inheriting assets, it is important to understand what the step-up...

Why Small Business Owners Need an Estate Plan

Running a small business can keep you busy, but it should not keep you from creating an estate plan. Not having a plan in place can cause problems for your business and your family after you are gone.   While an estate plan is important for everyone, it is especially...

What Not to Include in Your Will

If you are considering preparing a will, this is a great first step in planning for the future. Clients often think that their will is the document that should include all their wishes and provide for the distribution of all their property and funds. That is not the...

Claiming Social Security Benefits at Age 70

If you are about to turn 70, congratulations on reaching a big milestone.  And if you also have delayed claiming Social Security retirement benefits up till now, you are joining a select group -- only 6.5 percent of Social Security recipients put off collecting their...