Medicaid Planning and Irrevocable Trusts

Medicaid Planning and Irrevocable Trusts

Growing old can be extremely costly, especially if you will likely need nursing home care or home health care in the next couple of years. According to MetLife’s “Market Survey of Long-Term Care Costs,” the national average cost of a semi-private room in a nursing home in 2011 was $74,825 per year, and $87,235 per year for a private room.

Many senior citizens who do not plan effectively for long-term care end up paying their nursing home fees out of their savings until they have nothing left and eventually qualify for Medicaid (called Medi-Cal in California). I bet you didn’t spend years saving for retirement with the intention of handing all of your money over to a nursing home instead of your children or grandchildren. Don’t let your life’s savings go down the nursing home drain!

You Don’t Have to Spend Down

When my clients come to me to start planning for long-term care, many of them assume that they will have to “spend down” all of their money so that they can qualify for Medicaid or Med-Cal. Not so! An irrevocable trust can help legally shield your assets so that you can qualify for Medicaid or Medi-Cal without spending down to the $2,000 limit that those programs require.

Plan Early

To take advantage of the power of an irrevocable trust, you must start planning years before you will need Medicaid or Medi-Cal to cover the cost of your long-term care. When you put your assets into an irrevocable trust, the Medicaid or Medi-Cal system considers this a “gift”.

If you make a gift within five years of applying for Medicaid, you will be penalized (currently in California, the Medi-Cal look back period is only two and a half years, but this is set to change soon to five years). That means that you need to create the irrevocable trust five years before you apply to Medicaid or Medi-Cal if you want to qualify right away. However, the rules for Medi-cal are likely to change in 2014. As such, it may become more difficult to qualify for Medi-Cal. That is why now is the time to start the planning process.

How an Irrevocable Trust Works

An irrevocable trust basically holds your assets for you so that they can no longer be counted against you for Medicaid or Medi-Cal qualification. In this way, you can legally qualify for Medicaid or Medi-Cal coverage while your nest egg stays safe for your heirs. Additionally, while you cannot take any of the principle from the trust, you can withdraw income that the trust makes. This means that your assets won’t be completely shut off from you.

The irrevocable nature of an irrevocable trust can cause some people to worry, but it is a solid and safe option. For instance, your beneficiaries cannot sell your house while you are still in it, and you can even appoint a trust protector to make sure the trust isn’t abused.

Why You Need An Elder Law Attorney

An irrevocable trust is a complex instrument and should only be drafted by an experienced elder law attorney. It is important that you understand the consequences of creating an irrevocable trust and how it fits with a larger long-term care planning strategy. I strongly suggest scheduling a consultation with an elder law attorney to discuss whether an irrevocable trust is an effective option for your long-term care planning needs.

At the Law Office of Justin M. Gilbert, I specialize in helping clients protect their hard earned assets and prepare for whatever the road may bring in the later years of life. Give me a call at (916) 467-4999.


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