Long-term care in a nursing home or an assisted facility can be quite expensive. In 2020, the average cost for a semi-private room was $7,756 for each month, rising to $8,821 per month for a private room. Taking a good look at the average Social Security payout in June 2020 (of around $15,000 per month) should help you understand why seniors struggle to afford health care.
It is not surprising that many individual embrace Medicaid for assistance as it is the cheapest option available compared to private care. This government funded program pays for nursing home care more than any known type of insurance. However, everyone cannot qualify for Medicaid. To qualify for Medicaid, you may have to spend down your assets so as to fall within the limit.
When it comes to simple health care, Your Medicaid eligibility is usually based on your income. However, when it comes to long-term care in a nursing home, Medicaid considers or scrutinizes your assets. For the year 2021, to be deemed eligible for Medicaid, you must own $2,000 or less in gross countable assets and earn less than $2,382 per month in income.
Worthy to note is that, not all that you own is counted while determining your eligibility for long-term care. It is crucial to understand what is and what isn’t counted. Have it at the back of your mind that Medicaid programs are operated by the state and each state may have diverse requirements.
How to protect assets when applying for Medicaid
People are often fond of taking proactive measures before applying for a Medicaid. And one of those proactive measures involves the protection of their assets. The main reason why people protect their assets before applying for a Medicaid is to ensure that they fall within the asset ownership limit as required by Medicaid.
There are a few methods used to project assets when applying for Medicaid. These methods are:
- Offering gifts
- Creating a life estate, and
- Establishing an irrevocable trust
For the purpose of this article, we’ll be looking at if an irrevocable trust can indeed be used to protect your assets when applying for Medicaid. However, before we delve into that, it is best we take a look at what an irrevocable trust is.
What is an Irrevocable Trust?
Generally, there are two types of trusts; revocable trust and irrevocable trust. An irrevocable trust is a trust where its terms cannot be changed, altered, or cancelled without the consent of the beneficiaries designated by the grantor. The grantor, having already transferred ownership into the trust, legally expunges all their right of ownership to the assets present on the trust. An irrevocable trust is the opposite of a revocable trust which allows the grantor to alter, change, or terminate the terms of the trust.
Can an irrevocable trust be used to protect assets when applying for Medicaid?
Of course, and irrevocable trust can be used to protect assets when applying for Medicaid. However, there are some things you need to consider. And it is also important you contact an experience Medicaid attorney for assistance.
An irrevocable trust allows you to avoid gifting or lavishing your assets to be eligible for Medicaid. Assets in this type of trust aren’t yours, and you must designate an independent trustee. You may decide to state that the trust assets be transferred to your spouse and/ or other loved ones upon your death. For the sake of your Medicaid eligibility, it is important you don’t attempt to control the trust’s principal. Although you may use the assets in the trust while alive.
In the event that the family income is an asset placed in the trust and is done while you, the Medicaid recipient, still breathes and is housed in a nursing home, the proceeds will not be counted as a resources towards Medicaid edibility.
When set up for the purpose of securing assets from being used to finance the cost of a nursing home or other ling-term care cost, the name “Medicaid trust” may be adopted to indicate the type of trust.
A huge red flag with the use of this trust is that it is subject to the Medicaid five-year look-back period.