It is important for you to understand the options that you will have for long-term care if you need it in the future. While you might not want to think about your potential care needs, the Department of Health and Human Services reports that nearly 70 percent of today’s 65-year-old people will need some type of long-term care in the future. This makes planning for how you will pay for care important. At Elder Care Direction, our team of professionals can help you to understand the different types of care that might be available and suggest ways that you might be able to pay for it while protecting the assets that you have accumulated.
Sources to pay for long-term care
The potential sources for your long-term care include your own money, any long-term care insurance that you might have, and Medicaid. If you are eligible for Medicaid, it will pay for your care. However, since it is a means-tested benefit, you will only be allowed to receive it if you have a limited amount of property or money, a low income, or both. Many older adults do not want to spend the money that they have saved on long-term care. If you try to give your assets and income away to try to qualify for Medicaid, Medicaid may disqualify you for benefits for a penalty period. There are several strategies that you can take to protect your assets and money, but they require advanced planning. Elder Care Direction may take the time to explain these different options to you.
1. Asset protection trust
Asset protection trusts are set up to protect your wealth. While you are able to transfer assets to your family members, there are some disadvantages to doing so. An asset protection trust allows the assets to be distributed to the same people when you die so that your loved ones won’t have to pay capital gains tax on the amount that your assets have increased in value during your lifetime. Assets that are transferred to an asset protection trust do not belong to you. However, transfers to trusts that occur within five years of when you need Medicaid will be subject to the look-back period. This makes it important for you to plan well in advance of when you think that you might need care.
2. Income trusts
When you apply for Medicaid, there is a strict limit on your income. If your income exceeds the limits, it must be handled properly so that you can obtain and keep your eligibility for Medicaid. You can fix this problem by establishing a qualified income or pooled income trust. A qualified income trust is irrevocable and is established to hold the amount of your income that exceeds the Medicaid income limits. In some states, people are allowed to spend down the amount of income that is excessive so that they can meet the eligibility requirements for Medicaid. In others, you are not allowed to spend down your money for eligibility.
A pooled income trust is another type of irrevocable account that holds excess income. This type of trust is designed for people who are disabled. The excess income is pooled with the excess income of other disabled people. The funds are disbursed to the people by a non-profit agency that manages the funds. Any funds that are left over stay with the trust to be used for charitable purposes.
3. Promissory notes and private annuities
If you get rid of your assets and money during the look-back period, you will be penalized. In 2006, the government enacted a law that allows you to set up a promissory note or a structured private annuity. This can let you create a cash flow from your assets so that you can use it to pay for your nursing home care during a shorter penalty period.
4. Caregiver Agreement
Setting up a caregiver agreement may be a good way to obtain services that would not be covered by Medicaid. Under this type of agreement, a trusted family member or friend may leave his or her job and care for the older person. The services may be paid in advance to help to reduce the countable income for Medicaid eligibility. To be accepted by Medicaid, a caregiver agreement under which the caregiver will be paid in advance must include the following features:
- The services that will be provided and the hours that will be worked must be specifically defined in the contract
- You must maintain a daily log of the hours worked and the services that are performed;
- Any unearned amounts that remain when you die must be paid to Medicaid; and
- Your lump sum payment has to be calculated by using market rates for the services and a reasonable life expectancy.
5. Spousal transfers
Transfers of assets between spouses are allowed under the law and are not subjected to the look-back period. In some states, a healthy spouse is allowed to refuse to provide financial support for his or her spouse. This makes the ill spouse eligible for Medicaid. When Medicaid begins providing the services, it will have the right to ask for contributions from the healthy spouse. Medicaid does not do this in some cases, and in others, it may be willing to settle for a lesser amount. Most states don’t allow spousal refusal. In those states, both spouses’ resources are counted towards the eligibility amounts for Medicaid, making this strategy ineffective.
Contact Elder Care Direction
Elder Care Direction is available to help you to understand the different options that you might have to protect your income and assets. We can refer you to one of our screened partner attorneys for help with understanding the laws in your state. Contact us today to schedule a free consultation by calling us or filling out an online contact form.