should i use a living trust my estate plan? medicaidMedicaid is a welfare program with strict income and wealth limits to qualify, explains Kiplinger’s recent article entitled “You Can Keep Some Assets While Qualifying for Medicaid. Here’s How.” This is a different program from Medicare, the national health insurance program for people 65 and over that largely doesn’t cover long-term care.

If you can afford your own care, you’ll have more options because not all facilities take Medicaid. Even so, couples with ample savings may deplete all their wealth for the other spouse to pay for a long stay in a nursing home. However, you can save some assets for a spouse and qualify for Medicaid using strategies from an Elder Law or Medicaid Planning Attorney.

Your assets must be $2,000 or less, with a spouse allowed to keep up to $130,380, at the most. However, cash, bank accounts, real estate other than a primary residence, and investments (including those in an IRA or 401(k)) can count as assets. However, you can keep a personal residence, non-luxury personal belongings (like clothes and home appliances), one vehicle, engagement and wedding rings and a prepaid burial plot and still be eligible.

However, your spouse may not have enough to live on. You could boost a spouse’s income with a Medicaid-compliant annuity. These turn your savings into a stream of future retirement income for you and your spouse and don’t count as an asset. You can purchase an annuity at any time, but to be Medicaid compliant, the annuity payments must begin right away with the state named as the beneficiary after you and your spouse pass away.  There are other important considerations in using this type of annuity, so speak with an elder law attorney to make sure you are planning correctly as these types of annuities are irrevocable.

Another tool is a Miller Trust or a Qualified Income Trust, which is an irrevocable trust that’s used exclusively to satisfy Medicaid’s income threshold. If your income from Social Security, pensions and other sources is higher than Medicaid’s limit but not enough to pay for nursing home care, the excess income can go into a Miller Trust. This allows you to qualify for Medicaid, while keeping some extra money in the trust for your own care. The funds can be used for items that Medicare doesn’t cover.

These strategies are designed to protect assets or income for couples; leaving an asset to other heirs is more difficult. Once you and your spouse pass away, the state government must recover Medicaid costs from your estate, when possible. This may be through a lien on your home, reimbursement from a Miller Trust, or seizing assets during the probate process, before they’re distributed to your family.

Note that any assets given away within five years of a Medicaid application date still count toward eligibility. Property transferred to heirs earlier than that is okay. One strategy is to create an irrevocable trust on behalf of your children and transfer property that way. You will lose control of the trust’s assets, so your heirs should be willing to help you out financially, if you need it.  There are numerous considerations to make before giving away assets though, so make sure to visit with an elder law attorney to understand all the implications on your taxes, qualifying for Medicaid, and making sure you don’t regret something.

Reference: Kiplinger (May 24, 2021) “You Can Keep Some Assets While Qualifying for Medicaid. Here’s How”