Long Term Care Myths Debunked by an Elder Law Attorney
The unfortunate truth is that many, if not most, retirement-ripe individuals and seniors are misinformed about Long-Term Care and their options. For example, it is widely accepted that Long-Term Care is costly and those who haven’t invested in Long-Term Care insurance policies are not protected. Although there is truth to this belief, we should take into account other options such as Medicaid Planning. Yet another misconception involves the perception concerning Medicaid Planning itself. Namely, most people will say that Medicaid Planning involves “divesting oneself of assets”. While there is some truth to this conception as well, Medicaid Planning is far broader and more significant for most retirees. One reason is that in taking steps to ensure creditor protection from all creditors (not just medical institutions), will actually result in Medicaid Planning. Similarly, a typical fifty year old may have no need in the near future for long term care or Medicaid but is starting to (or should start to) think about the eventual passing of their assets to their family members upon their passing. Yet another concern for seniors is ensuring their affairs are not impeded by their potential physical or mental incapacity. All of these concerns are addressed in the process of Medicaid Planning; even if an individual has no plans of qualifying for Medicaid in the near future, “Medicaid Planning” may be very useful to that individual given that most of us want to achieve creditor protection and the seamless transition of our assets to our children or other heirs.
Not only is Medicaid Planning far broader than simply attempting to become Medicaid eligible, it is also far broader and more flexible than “divesting oneself” of one’s assets. While it is true that the assets won’t be accessible to the person in the same way they were prior to the act of Medicaid Planning (we will attempt to define the act later in this article), there is still a lot of flexibility and benefit from the assets. For example, in most cases the income from the asset is still available to the individual and the asset itself can be used to support one’s children (or any other beneficiary). Furthermore, if the asset is a residence, the individual maintains an absolute right to live there and preserves any associated property tax break (e.g. STAR, etc).
The most commonly employed tactic of Medicaid Planning involves the transfer of assets to a Trust. An irrevocable asset protection Trust is instrumental to garnering creditor protection and commencing the process of Medicaid eligibility (whether eventual or immediate). This type of a Trust locks away the principal of the transferred property (whether it be a home or an investment account or any other property of value) – therefore, it is sensible to only transfer assets that the individual is not planning on using for financial support during retirement (again, this is with regard to the principal only because the income from the asset can be available for use). For example, if you are in your 50s or 60s and have a sizeable retirement plan with sufficient income, it makes no sense to keep your personal residence and any other property in your name since chances are slim to none that you will need to invade these (i.e. liquidate or borrow against them) to pay for your living expenses. Therefore, if you find yourself owning these types of assets, the only thing you accomplish by keeping them in your name and not in Trust is exposing the assets to potential medical bills or other creditors.
How soon should one start to protect their assets and contemplate long term care expenses? Certainly when one is in their 50’s the time is ripe. It is also important to note that there is currently a five year lookback with regard to institutional (nursing home) Medicaid. This means that any assets transferred for less than fair market value (whether as a gift to a Trust or outright to an individual), within five years of applying for Medicaid is subject to a penalty. Medicaid calculates the penalty as follows: the value of the transferred asset is divided by the average monthly Nursing Home care costs (currently roughly $13,000 a month in NYC). Once that number is discovered, it represents the number of months Medicaid will not cover the applicant for Nursing Home care. Please note that this “penalty” is only for institutional Medicaid and does not apply to long term care given at home via home health aides through community Medicaid.
Although asset protection and Medicaid Planning are very complex, they are essential processes for most seniors and retirees living in New York. I have greatly enjoyed helping my clients preserve their assets and achieve peace of mind and hope that this article helps orient your thinking towards the significance of planning ahead. For more information on retirement and Medicaid Planning, please refer to my other articles available at http://www.yadgarovalaw.com/articles.php Irina Yadgarova is the founding attorney of the Law Offices of Irina Yadgarova PLLC and focuses her practice on Trusts & Estates, Probate & Administration and Elder Law. Ms. Yadgarova frequently lectures on Estate Planning and Advance Directives. Her articles on Estate Planning and Elder Law are often featured in community newspapers. She is fluent in Russian and resides in Queens, New York with her husband and three children.