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Medicaid planning: an overlooked aspect of estate planning

It is easy to assume that Medicaid will be there for you to pay for your long-term care, such as a nursing home, if you need it. However, Medicaid may or may not be available for your situation, as you have to meet certain requirements before you qualify.

Under the rules surrounding Medicaid, applicants must be “medically needy” under the program’s definitions and have very limited assets in their name. You may have heard that you can simply give away your assets in order to qualify for Medicaid. Although this may have been true in the past, this is no longer the case.

The main reason why you can no longer qualify by giving away your assets is because Medicaid has a five-year look-back rule. Under this rule, Medicaid reviews all financial transactions of applicants made during the five years before they applied for assistance. If Medicaid finds that you gave away certain assets during this time, it may impose a penalty period upon you, which makes you ineligible to receive benefits for a certain period of time.

After you qualify for benefits, you may be entitled to keep certain assets. However, upon your death the government may attempt to recover the cost of the care from these assets. Essentially, this means that it will file a claim against your estate. The government may also be able to place a lien on any real estate you may own. This raises a potential problem for many that would like to leave their homes and other assets to their children or other heirs.

Avoiding asset recovery

Although Medicaid asset recovery can potentially cause you to lose your home and other key assets, this does not have to be the case. There are several estate planning solutions, which are commonly known as Medicaid planning, that can help you preserve many of your assets.

An effective way to prevent the government from taking your property is to transfer your key assets into an irrevocable trust. Doing this allows you to transfer the assets within the trust to your beneficiaries after you die without fear of losing them in the Medicaid application and recovery process. There are also some favorable tax benefits to using an Irrevocable Trust versus outright gifts. Of course, using this option may or may not be right for you.

An attorney can tell you more

If you anticipate needing Medicaid assistance, it is advisable to contact an estate planning/elder law attorney as soon as possible. Due to the look-back rule, it is preferable that any Medicaid planning be done five years before you apply for assistance. An experienced estate planning/elder law attorney can analyze your situation and recommend the best option to accomplish your long-term goals.