Considering that 70% of individuals over the age of 65 will need some type of long-term care in the future, it is important to plan for how you might pay for your care. The simplest way is to pay out of pocket. However, with long term care costs ranging anywhere from $50,000 to $100,000 per year, paying out of pocket is not an option for most—at least not long term.
Planning to Preserve
An alternative solution that will allow you to cover your cost of care is Medicaid. Long-term care Medicaid can be a life saver; but you have to meet its strict asset threshold. For example, the person who is in need of care (“the applicant”) can only have $2,000 worth of assets in their name for Medicaid Purposes (note: Medicaid does not count the applicant’s primary residence or the applicant’s vehicle). If the applicant is married, their spouse can have up to $126,400 worth of assets in the spouse’s name (minus the home and cars for the couple).
Those individuals who are over resourced (have more than the asset threshold) are put at a disadvantage. Many have more than the threshold but are by no means wealthy or able to pay out of pocket for care. Furthermore, the notion of spending all of your hard-earned assets for costly long-term care is a rather dim prospect for most. So, what are those who are over-resourced to do? Spending down the money is one option. This is a regular planning tool to preserve the value of the assets while simultaneously qualifying the individual. However, depending on the nature and amount of the assets, this may not be the best approach. For example, some individuals are so over-resourced that a spend-down includes spending some of the assets on the cost of care instead of preserving it (because it would otherwise count as an asset).
Another option is getting your assets out of your name. This is a great option if done correctly and strategically, because it can allow you to preserve all of your assets while allowing you to also receive Medicaid. You’d ideally want to gift away the amount of asset that are putting you over the threshold. (e.g. if you have $200,000 worth of assets, you’d give away $73,600 to reach the limit of $126,400). This will no doubt get you under the asset threshold. However, gifting the property—to an individual or irrevocable trust—will trigger the lookback period. The lookback period is where Medicaid looks back 3 to 5 years from the date of application (3 years for assisted living—5 years for nursing home care) to see if you gave any assets away. If the see that you have, they assume that the purpose of the gift was to artificially lower your asset level to qualify for Medicaid, which results in a penalty. The penalty is a period where—although you qualify for Medicaid—they force you to pay out of pocket for a period of time before Medicaid kicks in (currently, every $6,300 given is a month of penalty e.g. if you gave away $12,600, your penalty would be 2-months).
Getting the assets out of your name is an option for many who plan far ahead. If you do not contemplate needing care for the next 3 to 5 years, then triggering the lookback period can be a strategic move that puts you at a great advantage if you were to need care past after the lookback period has run. The issue with this strategy is that it’s a bit of a gamble. Many individuals cannot effectively guess when their health will decline. Further, many individuals wait to plan for the need for long-term care until they start to see their health decline. Thus, many don’t have the luxury of waiting for the lookback period to run.
Eliminating the Lookback Period
So, how do you manage to preserve all your assets and not suffer the effects of the lookback period? The answer is long-term care insurance (“LTC insurance”). Long-term care insurance is like health insurance that will cover the cost of your long-term care based on the policy you purchase. Like health insurance, long-term care insurance has premiums that you pay monthly. However, the price of the premiums are not cumbersome and are cheap in comparison with cost of long-term care (one month of long-term care commonly costs more than a year of LTC insurance premiums).
Many LTC insurance policies are term policies that range 3 to 5 years. This is perfect for planning purposes. Let me illustrate. Let’s say you purchase a 3-year LTC insurance policy today. You also simultaneously get your excess assets out of your name by putting it in an irrevocable trust (and triggering the lookback period). A couple days later, you suffer a stroke and immediately need to go to an assisted living facility. You can’t get Medicaid to cover the cost of care because you triggered the lookback period with the transfer to the irrevocable trust. However, you have a policy that will cover your cost of care for 3 years (the same time as the lookback period). Your LTC insurance will pay for your care for three years, thereafter you will qualify for Medicaid to cover the remainder of your costs because you’ve gotten the assets out of your name and the lookback period has run its course. We call that having your cake and eating it too.
The strategic use of an irrevocable trust and LTC insurance can allow you to preserve all of your assets and receive Medicaid down the road, while protecting you from the dreaded lookback period. If you have question about Long-term care insurance or planning for long-term care, we can help. Call McIntyre Elder Law at (704) 259-7040.
Brenton S. Begley
Elder Law Attorney
McIntyre Elder Law
“We help seniors maintain their lifestyle and preserve their legacies.”
PO Box 165
Shelby, NC 28151-0165