“Should I wait till my spouse is in a facility before doing Medicaid planning?”
No. You should do Alabama Medicaid planning as soon as possible as we must follow the rules that Alabama Medicaid lays out for us. If you wait till the crisis happens — your husband or wife goes into the nursing home — then we can still preserve much of your assets, but it is better if we can do the planning before the crisis hits. To be blunt, we can save a lot more of your assets if we start earlier, rather than when a crisis hits.
“What does it mean to do Medicaid Planning?”
It simply means to evaluate all of your assets (home, investments, properties, etc) and to look at what are your needs now, what will they likely be in the near future, and how much of your assets do you want to start protecting.
There is almost always a tradeoff in protecting assets and having full use and control over the assets.
As an example, let’s take a vacation home on the lake or at the beach.
If you keep it in your name then you have full use and control and the home is fully exposed to creditors and predators. Let’s say your spouse goes into a nursing home. Now this vacation home has to be counted as an available asset (“resource” in Medicaid lingo) and you will almost certainly have to sell this to use towards paying the nursing home before you can qualify your spouse for Medicaid. We certainly have options and ways to try to preserve your assets even in a crisis but let’s compare this to if you had planned ahead of time.
Say 4 years before your spouse goes into a nursing home, you put the vacation home in the proper type of Home Legacy Trust (a special kind of irrevocable trust) where you can still use it but you don’t own it anymore. When your spouse goes into a nursing home, and you decide to qualify your spouse for Medicaid, then Medicaid will look back 5 years to see if there have been any gifts.
In this situation (and there are lots of factors) we probably would have it set up so you could afford to pay for a years worth of care so you would not apply for Medicaid for your spouse until more than 5 years after you transferred the vacation home into the Home Legacy Trust. This allows you to preserve this asset for your family and still get the care needed for your spouse. This goes to the “timing” of applying for Medicaid benefits — an area where many lawyers (and do it yourselfers) make a mistake that can cost hundreds of thousands of dollars in unnecessary expenses.
We haven’t looked at the “numbers” or the detailed mechanics of this but hopefully it is clear that one option (no planning) means you will be spending down the money and the other (planning ahead) means the amount you will spend before you qualify for Medicaid is much less.
“Is it legal to do Medicaid Planning?”
Yes.
We simply follow the rules.
Medicaid has its 5 year look back and that is how far back it looks. If you made “gifts” within the 5 years of when you apply, then there is a penalty period going forward in time.
Sometimes we apply knowing we made gifts as we have figured out that the penalty period is the best deal — this means we are privately paying for the nursing home until we finish out the penalty period.
Here’s an example.
4 months ago we made a gift of a $55,000 property to our child. Now we need nursing home care.
Two choices:
- Apply for Medicaid once qualified and take a penalty OR
- Don’t apply for Medicaid until 57 more months go by (to get past the 60 month look back).
In this situation we would normally apply. Medicaid would say, “Ok, you gave away $55,000 and the number we divide into that is $5,500. That gives us an answer of 10. So family you have to pay for 10 months then you get Medicaid.”
How does this compare with option two?
There we pay for 57 months before we get Medicaid.
So in this situation it is better to take the penalty.
But what if the same gift was made ($55,000) 54 months ago?
If we take the penalty, we have to privately pay for 10 months.
If we just wait till the end of the 60 months, we pay for 6 more months.
So we always evaluate where-ever we are to see which is the best deal. Sometimes families come to us years into a crisis and say “What do we do now” and other times we get to plan years before a crisis.
The big take home point is as long as you follow the rules of Medicaid, there is nothing wrong with doing Medicaid Planning. We wrote an article about this in the context of “Is it Christian to plan for long term care?” that you might find useful.
“What about the 5 year look back rule?”
We have talked about this in the above examples. To make it clear here is how it works.
- When you fully qualify for Medicaid, and apply, then Medicaid looks back in time 60 months (5 years) to see if you made any gifts.
- If not, then you get on Medicaid.
- If you did make gifts, then Medicaid totals the gifts up.
- Then divides that total by $5,500.
- The answer is the number of months you have to privately pay for the nursing home care before Medicaid kicks in. This is known as the “penalty period” for making the gifts within 60 months of applying.
“When is the right time to do the planning?”
What’s the old expression about the best time to plant a tree is 20 years ago and the second best time is right now?
When’s the best time to plan for retirement?
When’s the best time to get the insurance you need?
Usually in the past but if we didn’t do that, then how about right now?
Now, you may not need to do planning right now but you won’t know until you sit down with a financial protection attorney or elder law attorney to evaluate your options. Use your financial advisor for help with managing your money and investments. Your CPA for tax advice.
But when it comes to understanding your legal options for long term care planning — particularly something so serious as nursing home care that can wipe out 60 years of work in a few years — make sure you get with a qualified attorney who knows all of the options and can explain the options to you in an understandable way.
If you live in Alabama we’ll be glad to talk to you. We represent clients from every part of Alabama — we can meet in person or by phone/video, etc. to start the process. Give us a call at 205-879-2447 and let the receptionist know you saw this article on our website and want to set up a planning session for long term care. Or you can fill out the contact form and we’ll get right back to you.