You may wonder why Medicaid would be relevant to you if you are going to qualify for Medicare coverage when you reach retirement age. After all, Medicaid is a health insurance program for financially needy people, right?
Medicaid is a need-based health insurance program. To qualify, you must be able to stay within income and asset limits. If you have Medicare coverage, you will have health insurance. You would not need Medicaid, and you would not qualify if you retired with a reasonable store of resources.
In spite of the above, Medicaid is quite relevant to a significant percentage of senior citizens. This is because Medicare will not pay for long-term care. If you need assistance with your activities of daily living, you cannot rely on Medicare to help with the bills.
This is a big gap, because nursing homes and assisted living communities are extremely expensive.
Medicaid Spend Down
How would you qualify for Medicaid if you have resources? This is typically accomplished through a process called a Medicaid spend down. A spend down is a measured divestiture of assets.
The idea is to get assets out of your own name before you apply for Medicaid coverage. You could give direct gifts to your children, but you could alternately convey assets into a Medicaid trust.
There are revocable trusts, and there are irrevocable trusts. Revocable living trusts are very popular. If you were to convey assets into a revocable living trust, they would be counted against you by Medicaid, because you would still control the assets.
A Medicaid trust would be an irrevocable trust. You surrender incidents of ownership when you place assets into an irrevocable Medicaid trust.
Because you cannot revoke the trust and walk away with the funds in your direct personal possession, you are giving up direct ownership of the assets. The assets become the property of the Medicaid trust. As a result, the resources would not be counted when your eligibility status was being determined by Medicaid evaluators.
This is the good news, but there are some potential disadvantages that go along with the creation of a Medicaid trust.
There is a five-year Medicaid look-back period. You must complete your Medicaid spend down five years before you apply for eligibility. As a result, you may create the Medicaid trust before you are sure that you will ever need long-term care.
You are giving up control of the assets, but you may never need to apply for Medicaid. This is one of the disadvantages of a Medicaid trust.
It is possible to create an income-only Medicaid trust. When you create this type of trust, you can continue to receive income from the trust’s earnings throughout your life. However, you are removing the principal from your name, so you are effectively accomplishing a spend down.
The bad news is that the income may go toward Medicaid reimbursement if you do in fact qualify for Medicaid at some point in time.
Learn More About Medicaid Planning
We have provided a bit of basic information in this post. To learn more, download our comprehensive special report. This report is being offered on a complementary basis, and you can access your copy through this link: Houston TX Medicaid Planning.
Stephen A. Mendel, Estate Planning Attorney
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