You may wonder why Medicaid would be relevant to you if you are going to qualify for Medicare as a senior citizen. The reason why Medicaid is relevant to many elders is because of the fact that Medicare will not pay for custodial care.
Custodial care is the type of care that you would receive in a nursing home or assisted living community. It is essentially living assistance rather than medical or convalescent care. For this reason, it is not covered under Medicare.
Medicaid is a need-based program. You must stay within certain asset and income limits to qualify for Medicaid as a senior who needs assistance paying for long-term care. In spite of this, most of the long-term care that is being received by seniors in the United States is being paid for by the Medicaid program.
How do people accomplish this when they retire with resources? For the most part, the answer is that they spend down to qualify for Medicaid.
Spending down is more or less self-explanatory: you spend or give away assets in advance of applying for Medicaid so that you can fall within the upper asset limits.
To spend down you could give direct gifts to your loved ones, as long as you do so well in advance of applying for Medicaid. You have to spend down in advance because of the five year look-back period. If you give away assets within five years of applying, your eligibility will be delayed.
Another option would be to place assets into a Medicaid trust. A Medicaid trust is an irrevocable trust that is created with Medicaid eligibility in mind.
You could create an income-only irrevocable Medicaid trust to remove the principal assets from your personal asset profile. The property that you conveyed into the trust would not be counted by Medicaid when they are calculating your total assets.
However, you could still receive income from the earnings of the trust.
The benefits are self-evident, but there is a significant disadvantage. You are surrendering control of the assets that you place into a Medicaid trust. Once you convey the assets into the irrevocable trust they are no longer yours. You won’t be able to change the terms of the trust or otherwise regain control of the assets.
In addition to the matter of financial need, you may never require long-term care. Medicaid eligibility may never be a factor.
Another disadvantage that comes along with the creation of a Medicaid trust is the ongoing cost of trust administration.
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This has been a brief look at the pros and cons of Medicaid trusts. To learn about these trusts in greater detail, contact our firm to schedule a free consultation.