Estate planning, when done correctly, will accomplish considerably more than just creating a blueprint for the distribution of your assets after you are gone. It will also protect those assets while you are still here as well as after your death. One of the biggest potential threats to your assets is probably one you haven’t considered unless you are already a senior – the cost of long-term care. Those costs may cause you to turn to Medicaid for help paying your long-term care bill. The need to qualify for Medicaid, in turn, could threaten your assets. If you have an Individual Retirement Account (IRA), you should consider including Medicaid asset protection strategies in your estate plan now to protect the assets held in that account.
Will You Need Long-Term Care?
Your odds of needing long-term care increase with each passing year. When you enter your retirement years you already stand a 50-70 percent chance of needing some type of long-term care (LTC) services before the end of your life. The longer you live, the higher the odds that you will end up in a nursing home. Paying for that care could put your assets at risk given the high cost of LTC. At almost $165,000 per year, nursing home costs in Connecticut are considerably higher than the national average of about $90,000 per year. Although you may rely on Medicare to cover most of your healthcare expenses once you retire, you won’t be able to turn to Medicare for LTC expenses because Medicare won’t cover them. Unfortunately, most health insurance policies also exclude LTC expenses. Because Medicaid does cover LTC expenses, over half of all seniors currently in an LTC facility rely on Medicaid for help paying their bill. The problem is that qualifying for Medicaid can put your assets at risk because of the low income and asset thresholds imposed by the program.
Is Your IRA Subject to the Medicaid Spend-Down Rules?
Eligibility for Medicaid depends, in part, on an applicant’s income and assets. To qualify, the value of your “countable resources” must fall below the program’s limit which is as low as $2,000 for an individual. If you have resources valued in excess of the limit when you apply, Medicaid will deny your application and expect you to “spend-down” your resources in order to qualify. Fortunately, some assets are exempt from consideration when applying for Medicaid. Medicaid will count your IRA or 401k as an available source of funds to pay for your care, unless it is in payout status. “Payout status” means that you are taking at least the required distribution out of your plan on a monthly basis. If your IRA account is in payout status, the monthly payment will be counted as income, thereby impacting the Medicaid income limits. Either way, your IRA account will be considered when applying for Medicaid unless you included Medicaid asset protection strategies in your estate plan ahead of time.
The Medicaid Estate Recovery Program
If you do manage to get qualified for Medicaid without the loss of assets, do not make the mistake of assuming you are home free. Your initial eligibility evaluation for Medicaid is not the only time your assets could be at risk. The Medicaid Estate Recovery Program (MERP) puts your assets at risk once again after your death. The purpose of MERP is to allow the individual states to try and recover some of the funds they spend on Medicaid recipients after the recipient’s death. The MERP rules allow the state to file a claim against the recipient’s estate, for the amount spent on the recipient, during the probate of the estate. Assets included in your estate after your death are, therefore, still at risk of being lost to Medicaid. There are, however, some limits to MERP. MERP cannot go after your property if any of the following apply:
- There is a spouse who is still alive.
- There is a child under 21 years of age.
- There is a child of any age who is blind or permanently and totally disabled under Social Security requirements.
- If doing so would cause an “undue hardship”
In addition to the legal exclusions, the individual states have considerable discretion with regard to pursuing MERP claims. Some states routinely file claims against the estates of all Medicaid recipients while other states are more selective about filing claims.
The best way to protect your IRA and other hard-earned assets is to include Medicaid asset protection tools and strategies in your comprehensive estate plan long before the need to qualify for Medicaid is likely to occur.
Contact Connecticut Medicaid Asset Protection Attorneys
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about protecting your IRA from Medicaid, contact the experienced Connecticut Medicaid asset protection attorneys at Nirenstein, Horowitz & Associates, P.C. by calling (860) 548-1000 to schedule an appointment.