This article discusses a 6-Step Checklist for Protecting Your Assets from Medicaid.
STEP 1: Before You Get Sick, Give Monetary Gifts to Your Loved Ones
Of course, there's no way to tell for sure whether or when you'll need nursing home treatment, so giving presents to your loved ones ahead of time protects the money from creditors looking to recover after your death. Any properties you pass within the five years prior to joining a treatment facility are liable to seizure after your death while you are on Medicaid. Transferring funds before you get sick protects the assets and guarantees that your loved ones can legally hold the presents you give them.
STEP 2: Hire an attorney to draft a "Life Estate" for your property.
With a potential ownership interest in the home, naming you as the life tenant and a loved one you trust as the “remainderman.” As a life tenant, you have the freedom to stay in your home until you pass away. Following your passing, possession of the property is passed to your loved one, preventing the state from claiming it. If you build a life estate and pass real estate, you won't be penalized if you end up in a nursing home, as long as the transfer took place at least five years before your illness. However, if you join a nursing home within the five-year period, you will be charged a fee for moving property that would otherwise be eligible for estate recovery.
STEP 3: Invest in An Annuity with Liquid Assets
In certain states, annuity payouts are not taken into account when deciding Medicaid eligibility. As a result, you can put your savings into an annuity and still be eligible for Medicaid-covered nursing home treatment without having to spend down assets. You can still safely move assets into an annuity if your state considers annuity payouts when deciding Medicaid eligibility, but you won't be able to access Medicaid benefits for a certain period of time after the transfer.
STEP 4: Give Your Spouse a Share of Your Monthly Income
Spouses of nursing home patients are covered by the Federal Spousal Impoverishment Act, which allows them to exclude their own wages while paying for their spouse's nursing home treatment. You can direct a portion of your income to your spouse to fill the difference if your spouse's income is less than the sum your state exempts. The money you send to your spouse for monthly support is tax-free and covered under federal law.
STEP 5: Use an Irrevocable Trust to protect your assets.
An irrevocable trust, unlike a living trust, is not subject to nursing home costs. While you cannot receive principal from an irrevocable trust, the trust's periodic interest and dividends are safe from seizure.
STEP 6: Put Your Assets and Those of Your Spouse into A "Pour-Over" Trust
This form of trust prevents your assets from being seized while also allowing you to access the funds. Create or update your wills to provide a testamentary trust for the surviving spouse's benefit. While some funds from the initial trust “pour over” into the assets of the deceased spouse, the testamentary trust contained in his will prevents the money from being seized to pay for nursing home expenses. This protects both you and your partner from financial ruin, regardless of who dies first.
Words of Caution and Suggestions
The spousal maintenance cutoff amounts differ by state; however, for each dependent adult child or minor child residing in your household, you can increase the monthly amount you designate to your spouse by one-third.
State Medicaid authorities have the right under the Omnibus Budget Reconciliation Act of 1993 to recoup any funds expended on your nursing home treatment from your estate after you die. As a result, any properties you did not adequately shelter until joining the nursing home could be lost for your descendants.
If you give monetary gifts to family members in excess of the annual limit, you might be subject to a gift tax. The maximum amount you can send to a loved one tax-free fluctuates on a regular basis. On the IRS website, you can check the current tax-free gift cap.
Request a consultation with an Illinois Estate Planning Attorney. Call our office at (630) 324-6666 or schedule a consultation with one of our experienced lawyers today. You can also fill out our confidential contact form and we will get back to you shortly.
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