There are misconceptions that circulate about various elder law and estate planning details. They are usually based on half-truths, and we will look at one of these myths that applies to Medicaid and home ownership in this post.
Nursing Home Asset Protection
Before we focus on the subject at hand, we should explain why Medicaid should be on your radar if you will qualify for Medicare as a senior citizen.
The United States Department of Health and Human Services compiles statistics about long-term care for elders, and they have shared some interesting numbers. Seven out of ten senior citizens will need some type of living assistance, and 52 percent will need paid care.
They have found that 35 percent of elders will reside in nursing homes, and these facilities are quite expensive. In 2020, the median annual charge for a private room in a Smithtown, New York area nursing home was an eye-opening $182,500.
The average length of stay for nursing home residents is one year, but 13 percent of people that need paid long-term care receive the assistance for more than five years.
For clarity’s sake should emphasize that the fact that the five-year figure applies to all types of paid living assistance.
Medicare does not pay for custodial care of any kind, but Medicaid will pick up the tab. This is why Medicaid is relevant to solvent seniors that are enrolled in the Medicare program.
Medicaid and Home Ownership
You cannot qualify for Medicaid if you have significant assets in your own name because it is a need-based program. The limit on assets in New York is $15,900 in 2021, but your home (with an equity limit of $906,000) is not considered to be a countable asset.
There is a Medicaid estate recovery mandate. The program is required to seek reimbursement from your estate after you die if you were a beneficiary. Since you can qualify as a homeowner, they could place a lien on your home after your passing if it is in your direct personal possession.
With regard to the question of whether they can take your home, the answer is yes, but they do not seize your home when you qualify for Medicaid. Plus, you can avoid this fate if you take the right steps in advance.
Before we explain the asset protection strategy, we should share another important detail. The recovery mandate is set aside if an adult child has been living with you in the home for at least two years providing a level of care that has allowed you to stay out of a nursing home.
Irrevocable, Income Only Medicaid Trust
The key ingredient to a nursing home asset protection plan is an income only Medicaid trust. This would be an irrevocable trust, and you would not be able to act as the trustee or access the principal after the trust has been established.
You would be able to receive distributions from earnings that are generated by income-producing assets and that are in the trust until you apply for Medicaid.
When and if you apply for Medicaid, the distributions would no longer be available, and the principal would not count against you. However, there is an important stipulation.
There is a five-year Medicaid look back period. If you give away assets within 60 months of the submission of your application, it would be denied, and a penalty would be imposed.
The duration of the penalty would be based on the amount that you conveyed into the trust within this five year window. It is based on the amount of nursing home care that the divestiture would have paid for if it was contributed toward the long-term care costs.
To explain through the use of a simple example, let’s say that Medicaid determines that the average cost of long-term care in our area is $150,000 a year. If you fund the trust with $300,000, this amount would pay for two years of care.
As a result, your eligibility for Medicaid would be delayed by two years. Clearly, proactive advance planning is the key to the effective implementation of this strategy.
We Are Here to Help!
If you would like to work with a Smithtown, New York elder care attorney to develop a nursing home asset protection plan, our doors are open. You can send us a message to request a consultation appointment, and we can be reached by phone at 631-265-0599.