Am I Too Young for Medicaid Planning?
Am I Too Young for Medicaid Planning?
None of us are getting any younger and, generally, not any healthier. That does not mean each of us should immediately begin the process of traditional Medicaid Planning, like setting up a Medicaid Income Only Asset Protection Trust, gifting assets to family members, or irrevocable trusts.
Often the impetus for wanting to put Medicaid Planning in place as soon as possible is the misconception that, if a person is in need of long-term care, the State or “Medicaid” will take your assets or place a lien against your assets. [1] In actuality, if someone is in need of long-term care and wishes to apply for Medicaid and they have resources in excess of what is allowable to qualify for Medicaid, depending on the circumstances they will first need to spend down some of their assets on the cost of their health care or allowable expenses, transfer assets out of their name, or some combination of both. [2]
Someone in their 50s or younger is not necessarily ready to divest themselves of assets or put in place administrative layers, such as trusts, between themselves and their assets. Those layers can result in certain transactions that otherwise would be simple becoming difficult or not possible. For example, refinancing a mortgage or obtaining a line of credit on a residence or investment property that has been transferred to Medicaid Income Only Asset Protection Trust can become difficult because of a general lack of lenders willing to make such a loan to a trust.
To that end, there is another planning option that one can consider. Although traditional Long Term Care Insurance options are few, and what does exist is often cost-prohibitive, there is a relatively new product on the insurance market: Life Insurance with a Long-Term Care Rider sometimes referred to as a Hybrid Policy. A simplified explanation of this insurance product is that, in the event that the insured individual requires long-term health care, the policy rider can be triggered to essentially borrow against the death benefit of the policy. When considering such an insurance product, some important policy specifics to be aware of are i) the Elimination Period, ii) the Maximum Daily Benefit and Maximum Policy Benefit as they relate to the cost of care in your locale, and iii) the availability of an Inflation Rider. We encourage you to speak with a financial planner or insurance agent about this insurance product.
With that said, putting in place Long Term Care Insurance does not obviate the need to have basic estate planning documents in place, including a Power of Attorney and Health Care Proxy. These documents are imperative to allow your chosen agents to handle long-term health care and financial decisions in the event you were unable to do so. In addition to providing your agents with the ability to handle everyday financial transactions and health care decisions, these documents provide your agents the legal authority to contact the relevant insurance companies to initiate the claim process, and, if appropriate or necessary, apply for Medicaid benefits on your behalf and also handle any related financial decisions related to the Medicaid application.
In New York and most other States, a Power of Attorney must be prepared and executed to specifically give your agent the power to handle complex transactions, including asset transfers related to a Medicaid application. One should be aware of this important nuance when considering preparing their own estate planning documents or resorting to Internet-based services rather than consulting with an Estate Planning attorney.
If you have not put in place a Power of Attorney and Health Care Proxy and you become incapacitated, it is then too late to put those documents in place leaving your family to petition a court for Guardianship of your person and property. The person or persons who petition for Guardianship may not be the same persons you would have chosen to make your financial and health-related decisions. Further, a Guardianship proceeding is generally a costly process and can become lengthy and extremely expensive if the process is contested (e.g. by another family member who believes he or she is the appropriate person to serve as Guardian).
Not to be overlooked is that everyone should have in place a Last Will and Testament. In addition to stating who you wish to administer your estate and to whom your assets should go to upon your death, a comprehensive Last Will and Testament can include provisions that direct assets in trust for a beneficiary who has health issues, is disabled, or is receiving Medicaid or other government assistance. This, for example, can allow a spouse to leave assets for the benefit of the surviving spouse in trust to attempt to protect those assets in the event that the surviving spouse is receiving or in the future applies for Medicaid benefits.
Everyone’s circumstances are different, so if you have questions about Medicaid Planning or Estate Planning, please feel free to contact us.
[1] It is important to note that upon the death of a recipient of Medicaid, the Medicaid system has a right of recovery from the estate of the recipient. For this reason, part of proper Medicaid and Estate Planning includes avoiding assets passing through the estate of a recipient of Medicaid.
[2] In a situation where Medicaid is needed immediately or in the short-term, the extent to which assets must be spent down or transferred out of your name without impacting your eligibility will differ upon the type of Long-Term Care required (e.g. Home Care or Nursing Home Care) and other facts and circumstances, such as the option to make an exempt transfer of assets (e.g. to a spouse who does not also need Medicaid).
DISCLAIMER: This summary is not legal advice and does not create any attorney-client relationship. This summary does not provide a definitive legal opinion for any factual situation. Before the firm can provide legal advice or opinion to any person or entity, the specific facts at issue must be reviewed by the firm. Before an attorney-client relationship is formed, the firm must have a signed engagement letter with a client setting forth the Firm’s scope and terms of representation. The information contained herein is based upon the law at the time of publication.