Elder law attorneys have made significant strides in the past two decades educating the public as well as the legal profession on the importance of seniors engaging in advance planning to protect their life savings from the costs of long term care. While it appears that most have become more knowledgeable on the subject (and virtually every senior has heard of the “five year rule”), there are still a significant number of seniors who have not implemented any advance planning strategies.
If a senior does not have sufficient long term care insurance, is not wealthy enough to be self insured, and has resources greater than the amounts permitted by Medicaid, he or she will need to privately pay for care in a nursing home or at home. These costs can be financially devastating. In Westchester County, NY, for example, the average private cost of 24/7 care at home can average between $7,000 to $10,000 per month when utilizing a qualified agency. Obviously, this is significantly less expensive than the cost of a nursing home, which in Westchester averages $140,525 to $155,125 per year.
Unfortunately, it is unlikely Medicaid in the future will be as generous as to benefits and eligibility as it has in the past. These costs highlight the critical importance for seniors to focus upon implementing advance planning strategies prior to needing long term care. A Last Will, Revocable Trust or an estate tax plan is not sufficient for long term care planning purposes.
One of the most popular advance planning strategies utilized by elder law attorneys is creating and funding an Irrevocable Medicaid Asset Protection Trust (a/k/a an Irrevocable Income Only Trust). This trust can be funded with the senior’s home and part or all of his or her savings. For tax purposes the trust is structured so that the senior (a) is taxed as the owner of the assets in the trust; (b) has the right to reside in the home for the rest of his or her life; (c) can have the right to receive all of the income generated by the trust assets; and (d) has the right to change his or her mind as to the ultimate beneficiaries of the trust. The trustee(s) cannot make payment of the trust principal to or for the benefit of the senior/grantor of the trust. However, the trust can permit invasion of principal for persons other than the grantor/senior.
The funding of an Irrevocable Medicaid Asset Protection Trust does create a five-year look back period, and thus, allows for the assets held in the trust to be non-available for Medicaid eligibility purposes once the five year period has expired. However, the transfer of assets to this trust will not affect one’s eligibility for Medicaid Home Care, as the transfer of asset rules and look back period do not apply in such a case.
Obviously, other forms of gifting assets remain a viable option, as does purchasing long term care insurance.
The rules and regulations relevant to Medicaid eligibility and the transfer of assets are complex and frequently changing. Navigating these regulations does require the skill and experience of a seasoned elder law attorney. It is imperative that the public be constantly educated and reminded of the benefits of advance planning as well as the potential consequences of waiting too long.