What will you do if you cannot care for yourself? You’ve worked all your life and you’ve saved what you could. You’ve paid into Social Security for years. So, when you retire, you’ll get some money back from the government for a change. And, you’ll have Medicare to pay your medical expenses, right? Wrong. While Medicare pays some medical costs, it typically does not pay for “custodial” care. Custodial care is helping you with the tasks of everyday life, like cooking, cleaning, bathing, dressing, etc. If you become disabled or stricken with a degenerative disease like Alzheimer’s, “medical” care will not help much. Your main expenses in that case would be for someone to take care of your day-to-day needs, not medicine.
The average cost of nursing home care is now over $90,000 per year. You could pay for that out of savings, if you have enough. But, what about the government programs? Only in certain circumstances will Medicare pay for custodial care and, even when it does, the benefits run out after 100 days. Medicaid pays for custodial care, but you cannot have more than $2,000 in “countable” resources and qualify. If you give assets away within five years of your application, you will be penalized for doing so.
You could give away your assets more than five years before you need Medicaid’s assistance. But, who among us wants to give away all of our hard-earned assets on the possibility that we may need Medicaid more than five years down the road? There is another way.
With an Irrevocable Income Only Trust, you can make a gift today and retain the right to income from the trust. So, you’ll still get the use of the money during your lifetime. You can use the income to go on vacation or fix up the house or whatever you want. Five years later, if you need Medicaid assistance, the assets in the trust will not be “countable” assets. Depending on whether you are married at the time you enter the nursing home, some or all of the income generated by the trust may have to be used to pay down your “share of cost” during your period on Medicaid assistance. However, this is a good way to protect your assets from potential disaster.
Let’s look at two women, Mary and Jane. Each is widowed and in her late 60s. Each receives Social Security and Medicare and has a family history of degenerative diseases, but both are feeling fine and living life to the fullest, enjoying their retirement. Each has $300,000 of life savings, a home, and a reasonable income consisting of a small pension supplemented by their Social Security. Mary determines she can live on her Social Security and pension and places her assets in an income only trust. Jane does nothing. Five years later, they both need assistance with activities of daily living. In fact, they are roommates in the assisted living facility. When the Medicaid caseworker comes by, Mary applies and the caseworker looks at her countable assets. She has none and so Medicaid pays for her stay. Jane tries to apply, as well. However, she has $300,000 in countable assets and the caseworker tells her she must “spend down” this amount before Medicaid will pay. Within five years, all of Jane’s life savings are exhausted. Meanwhile, Mary still has her life savings intact. Only the income from Mary’s trust has been used to pay the facility as Mary’s “share of cost.”
Pre-planning can allow you to keep more of your assets, like Mary did. A qualified estate planning and elder law attorney can help you decide what level of asset planning is right for you.
Compliments of the McGee Law Firm, Attorney Brandon McGee
Written By: The American Academy of Estate Planning Attorneys