Medicaid Update & Medicaid Trusts

Even before the Coronavirus hit this winter, every client I spoke with was adamant about not going into a nursing home. Ever. Surely, the daily headlines of nursing homes being unprepared for this pandemic, resulting in thousands of deaths, isolation from loved ones and other problems will only make the idea of a nursing home even less popular.

A nursing home (skilled, 24-hour care) is not optional for some folks who have health issues in which staying at home would be a danger. If only we all had crystal balls that worked, and could tell us how long we’ll live and what our ailments will be, it would take the guesswork out of planning.

Unfortunately, very few of us plan for entering a nursing home. With costs over $100,000 per year and rising faster than inflation, it can wipe out or vastly diminish life savings that were meant as a safety net and/or inheritance for your loved ones. 

There are several options for protecting your estate from long-term care costs including traditional long-term care insurance, life insurance with long-term care riders, continuing care retirement communities (CCRC), and a Medicaid Trust. 

In particular, Medicaid Trusts work well as a shield for assets in your estate that you have already earmarked as an inheritance — things like a second home, investment account that is “never money” and other assets. A Medicaid Trust is a plan-ahead tool, where you put the asset into the trust now while you’re healthy. If you need a nursing home in the future, the assets in the trust would be protected from having to be spent on the cost of your care. Medicaid would cover your nursing home costs at some point, while the assets in the trust are protected. 

Since 2005, Medicaid has had a “5 year look back period” where you have to do the kind of planning described above at least five years before applying for Medicaid. Before that, it was a 3 year look back. I don’t know what the future holds for Medicaid, but given the deep hole we are digging with the national debt, something will have to give. Higher taxes? Less government services? Both? Congress could certainly extend the look back period, or give states more (or less) room to modify local Medicaid rules. 

If the look back period for Medicaid is extended, say to 10 years, I am almost positive that any planning you might have done prior to that change (i.e., a Medicaid Trust) won’t be grandfathered in. So the earlier you plan, certainly the better.