Planning for care at the end of your life or the end of your parent’s life is an important step for long-term financial security. If you don’t take steps as early as possible, your legacy or finances could end up compromised. While there are state programs in place to help pay for long-term care and skilled nursing services, there are income and asset caps that apply to that coverage.
Most adults have paid into Medicare throughout their working lives. They deserve to receive benefits without losing all of their assets in the process. Medicaid, however, is a welfare program that has applicable income and asset caps for coverage.
Medicaid is often the best option for those who need skilled nursing care or who must live in a nursing home. Without careful planning, your family could lose much, if not all, of a life’s worth of assets if you need state insurance for health care costs as you or your parents age.
What is the Medicaid look back period?
When a person applies for Medicaid, the state will look at the total value of that person’s assets, his or her income and any significant financial transfers in the recent past. This review of financial transactions is limited to transfers within a specific period of time, known as a look back period.
The look back period for Medicaid is 60 months or five years from the date when you apply for benefits. Any significant gifts or transfers within that period are subject to penalties. Even if your gift is below the cutoff for taxing gifts set by the IRS, you will likely need to pay the amount of the gift or transfer out of pocket before Medicaid will cover anything. The sooner you begin planning, the more assets you can safely transfer without risk of penalty.
Trusts are a common way of sheltering assets for planning
If you want to leave behind as much of your acquired wealth as possible without giving it to your heirs and family members now, creating a trust may be a good option. You can fund a trust with many different assets, including the equity in your home. Moving assets into a trust can protect them from precluding you from Medicaid, if you do it at least five years before you apply.
A trust also allows you to disburse funds as you need to for your own needs or to help your family. The sooner you begin planning to protect your assets, the better chance you have at leaving a valuable legacy to those who love and depend on you. Especially for those approaching retirement age or who have a family history of Alzheimer’s or similar conditions, creating and funding a trust earlier in life may prove to be a very sound choice.
Kevin Tharpe
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