Medicaid Planning — Will You Be Able To Afford Healthcare When You Retire?
While vast numbers of middle class American retirees continue to legally qualify for Medicaid, most of us tend to think (incorrectly!) that if we are homeowners or make a decent living, we will not be eligible for Medicaid upon retirement. This article serves to dispel that myth and provide a basic understanding of the legal framework surrounding Medicaid Planning.
For many of us, growing old without Medicaid could mean spending our life-savings on prescription drugs, home-care or nursing home care. The reality is that with careful planning ahead of time, you can ensure that you and your loved ones retire with the security that your medical needs will be covered by Medicaid.
Under the current New York laws (2012), a single person who is blind or disabled or is over 65 years old, can qualify for Medicaid if:
- your combined resources are $14,250 or less
- your only real estate is your primary residence, and your financial stake in it is under $758,000
- your monthly income does not exceed $812
If you are married, you and your spouse are allowed to receive a total of $1,159 in monthly income and keep $20,850 in resources in 2012.
But what if your monthly income or resources exceed the above amounts? What if you own two apartments? What if your pension is $1,300 per month? With health care costs skyrocketing, and with long term care in New York City costing between $10,000 and $15,000 per month, you would not be able to afford to retire and still pay our medical bills.
Even if your monthly income and resources are within the parameters outlined above and you can or have qualified for Medicaid, if you own your home, Medicaid - and not your children or grandchildren - may get it after you pass away.
Luckily, there is a legal way to help you qualify for Medicaid and to keep your home for your children and grandchildren. It is called Medicaid Planning.
When should you begin to plan for Medicaid?
It is never too early to begin planning. If you are in your 50s, planning to retire, are in good health and not in immediate need of long-term care (such as home-attendants or nursing homes), you are in a very good position to begin planning for Medicaid.
If you have suffered an accident or have suddenly fallen ill and need long term care, there is still a legal way for you to obtain Medicaid and to save a at least a portion of your assets for your family instead of spending all of it on your medical bills.
Transfers of Property
Proper and timely Medicaid planning can protect your life savings for your family - your spouse, children, and grandchildren. This means that you will be able to keep your home, income and other assets and still qualify for Medicaid.
Medicaid has access to your financial, tax, and other records and can see exactly when you transferred, how much you transferred, and to whom you transferred it. If Medicaid finds that you had $30,000 in your bank account in March, but only $200 in April, it will request bank documents, including all receipts, to determine if you spent the money in a legitimate way for Medicaid eligibility.
Transfers to a Trust
Transferring assets to a special trust can help those who have higher monthly income and more assets than allowed by New York law to qualify for Medicaid. The trust must be set up carefully, by an experienced attorney who specializes in such trusts.
If you will need to use Medicaid to go to a doctor, get medication, for emergency room visits and for home care (this is known as "community Medicaid"), you can transfer you assets to the special trust and qualify for Medicaid soon after the transfers are made.
If you need to go into a nursing home (this is known as "institutional Medicaid"), then you need to transfer your assets to the trust at least 5 years in advance. If you transfer your assets less than 5 years before needing one of the above mentioned services, then you will be "penalized" for the transfer and will not receive Medicaid until a certain amount of time passes. During this period, you will be required to pay for your care out of your own pocket.
The trust can be set up in a way that would allow for you and your spouse to always live in your home and for you to get income from assets that are in the trust. When you pass away, your property will be divided among the beneficiaries you designate in any way that you direct.
Transfers to Family Members
Some people believe that it is easier to transfer their apartment to a family member instead of transferring it to a trust. It may be easier, but it may turn out to be not as safe, and in the end much more expensive.
Transferring to your spouse may not help you become eligible for Medicaid. In most circumstances, whatever your spouse owns is considered to be yours as well. Slightly different rules apply if you are receiving long term care while your spouse is at home, but note that the danger is that transfer may make your spouse ineligible for Medicaid.
If you transfer your apartment or your money to your child (or another family member), your child (or family member) is now the sole owner of your property. If he gets into an auto accident and there is a judgment against him, what used to be your money and your apartment can be taken away under that judgment. In addition, he may lose your assets in a divorce or to his own creditors. We use trusts to protect your property from being lost in this way.
Transferring assets to a trust will also allow you tax benefits that you will not have if you transfer your real estate to a family member.
Are all transfers the same?
Transferring assets to certain people may make you eligible for both community Medicaid and institutional Medicaid without any penalties. These people include:
- A spouse
- A blind or disabled child
- A trust for a blind or disabled child
- A trust for a disabled adult under age 65
You may also transfer your home to the following people and qualify for both types of Medicaid without any penalty:
- Your spouse
- A child who is under 21 or who is blind or disabled
- A trust for a disabled person under age 65
- A brother or sister who has lived in the home during the year before you went into the nursing home and who already owns some part of the home
- Your child, who has lived in the house and took care of you for at least two years before you went into the nursing home
Besides transferring to a trust or directly to other people, there are other ways to transfer your property, but planning ahead is always crucial to your success in qualifying for Medicaid and being able to pass your property to your family. Because of the complexity of Medicaid rules, as well as the legal instruments used to plan for eligibility, you must consult an experienced attorney who specifically focuses on this area of law.