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Fear Factors in Elder Care Planning

The fear of many elderly individuals — perhaps even yourself or someone in your family — is that nursing home costs will consume their life savings before they can be passed to their heirs. This concern is real and has spawned elder care planning strategies designed to minimize the damage.

Background: Medicaid is a health care assistance program for elderly, blind, and disabled people in financial need. It covers nursing home costs, but it’s not easy to qualify for assistance.

The median annual cost of nursing home care in the U.S. is now $92,345 (for a private room) and can soar to over $280,000 (in Alaska, which has the most expensive nursing home care in the United States).– 2016 survey sponsored by Genworth Financial 

Generally speaking, an individual may own only a few assets — a car, certain personal belongings, a small amount of savings — and have a minimal income stream. The exact amounts are established by individual states. Since these standards are often unattainable, the assets of a nursing home resident may be exhausted by fees before becoming eligible for Medicaid.

Therefore, one typical objective of elder care planning is to “spend down” below the state Medicaid limits to qualify for assistance.

Traditionally, this has been accomplished through direct gifts made to other family members or by transferring assets to a trust that provides minimal payouts. However, there’s yet another hurdle: The Medicaid “look-back rules.”

Under the look-back rules, assets transferred within 60 months of the date of the relative’s application still count towards determining Medicaid eligibility. (The period is 36 months for transfers made before February 8, 2006, as long as they were not made to or from a trust.)

If the look-back rules apply, there is a waiting period before a relative qualifies for assistance. The rules for calculating the waiting period are complex, but eligibility is generally denied until the look-back period is free of transfers of less than fair market value.

Important issues:  Some states are strict in asking Medicaid applicants to prove where assets went with detailed records. A few states also want to toughen the Medicaid nursing home eligibility rules so that the look-back period is six years for all assets.

Despite this pessimistic outlook, planning opportunities exist on a state-by-state level. You may be able to take advantage of certain exceptions to the strict rules for Medicaid assistance. For example, in certain cases, nursing home applicants do not have to sell their homes to qualify for Medicaid. And transferring assets to certain people, such as a disabled child, does not trigger a period of Medicaid ineligibility.

It is generally recommended that people begin elder care planning for assets while they’re still healthy. This is an area of where professional advice from your attorney is critical.

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