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Medicaid Spend Down Planning
Commonly known as welfare, the Medicaid relief program assists numerous citizens of all ages. Assistance may come for those with low income, those with extreme health related costs, children needing medical coverage and and someone who has spent all their assets on long term care costs, and can no longer pay for their care. Medicaid has the stigma of being a terrible thing, but this program has helped numerous people find their way clear of unexpected health issues. Health related costs are the number one reason of wealth reduction and loss of assets. Many inheritances have been lost due to unexpected health issues and extended care needs. Here are three key points to be aware of in case there is a need for a long term care stay in your family.
Most people have heard of the look back period when dealing with the transfer of assets from one individual to another. A father decides to give his kids part of their inheritance on a date before his death. There is nothing wrong with this, unless at some point the father applies for medicaid assistance to help with a long term care stay. At this point, the Division of Family Services will do a review of application, with one of the questions being has the individual gifted away anything in the last five years (recently changed from three years to five years). Upon receiving the information that there was a gift that occurred sometime in the previous five years, DFS will deny the claim for medicaid relief, until the fair market value of the gift or cash has been utilized for the father's care and spent away, then releasing the father for care provided by the medicaid system. Rules and regulations continually change in this area, often leaving people confused on where they stand in their planning.
The Partnership Program is being implemented in many states, and is meant to give some relief to the medicaid system. This plan basically states that if an individual will take out a partnership approved Long Term Care insurance plan with a private insurance company, medicaid will exempt the dollar amount of the pool of used benefits from the individuals net asset value. If the benefit pool is $300,000 dollars, then that is ground zero for what DFS would look at to apply for medicaid relief. If the individual had more than $300,000 in assets, he would have to spend them down to the benefit pool total, then he could apply for medicaid, preserving the $300,000 to pass on to his heirs. This has opened an entirely new area of planning for asset protection.
Some states do no offer the Partnership Program yet, but the ability to pass on the risk of long term care needs to a private insurance company are still available to those in all states. With proper planning, a well designed long term care plan will still be very effective in the distribution of assets to an individuals heirs. The proper benefit pool and daily benefit can still ensure the passing on of assets to those that a person wishes to receive them. It is best to sit down with a professional in the field to determine exactly what planning should be done to avoid the risk of exposure to those protected assets.
Three simple thoughts, but very crucial to the long range planning of families. Some variations may be present in different states, but the concepts will still be the same as far as protection and preservation. The worst thing an individual can do is simply ignore what the rules and regulations address. Take the time, educate yourself, and have regular planning sessions with your financial and insurance professionals. The end result will be much better than those who do no plan.
The 60-Month Lookback - Protecting Your Assets in the Golden Years
Congressional legislation has made it so that state governments are forced to go after the one big asset that most of us have if we are in need of Medicaid assistance - our home equity. As a result, some states have become very aggressive in trying to pursue the money that we have saved in the form of home equity. This is primarily a problem if you are going to need to reside in a nursing home in your later years. Before the government will use the tax money that you have spent your entire working life paying into the system for the thousands of dollars per month that residence in a nursing home can cost, it is going to want to assured that you are completely broke - or at least darn close to it.
If you are in poor health in your later years, but have a spouse that is still living in the home, most states will protect your home and at least a portion of your income and other assets. In other words, the state will not force your spouse out of your home.
But what if this is not the case? What if you are divorced or widowed or your spouse is also going to need nursing home care? How do you protect your assets? You start by planning well ahead. Medicaid has a rule that is called the '60-month lookback' which means that when you need to qualify for Medicaid they are going to 'lookback' at the past five years of your assets. In other words, if you plan to save your assets by giving them to your children, you had better do it well before any health problems are likely to set in. Does this mean that you have to be psychic? Unfortunately, yes. Some people are not going to have major health problems until in their 80's or 90's, and some people are going to have major health problems in their 50's or 60's. But if you have given your house or any liquid assets to your children in the five years preceding the need for Medicaid, these assets will have to go towards the cost of your care. And if it occurs to you to lie about your assets - well, this is a criminal offense.
The problem with giving your house to your children is that if your house has increased greatly in value since it was purchased, your child will be hit with the capitol gains tax when they go to sell the house. If, on the other hand, you sell the house yourself you can shelter up to half-a-million from capitol gains tax if the home is the primary residence. This way your child will inherit a great deal more money. If you are all right with the idea of renting, selling the house is the way to go - but beware of inflation. If you decide to make this move at a relatively young age and end up living to a ripe-old age, that rent is going to end up costing you a lot of money.
Of course, the idea of giving your children your house or any of your other liquid assets well in advance of your death is fine - if you trust your children. In a perfect world, we would all trust our children to do right by us, especially in our golden years. Unfortunately, this is not a perfect world and some of us have children who simply are not trustworthy. Before giving your money to your children and trusting them to do right by you, take a good unbiased look at your children. Will they protect you?