“Protect your assets from the nursing home! Save your money for your heirs! Keep your savings and qualify for Medicaid!”
If you are thinking ahead to the costs of long-term healthcare – nursing homes, assisted living and the like – then you may have heard a pitch like this before. Sounds great… but how is it actually accomplished? And what is the catch?
Can Medicaid protect your money?
Long-term care (LTC) often presents a conundrum to investors. On the one hand, privatized LTC is very expensive and can quickly suck up savings that are intended for other things. On the other hand, getting LTC through Medicaid is much more affordable, but you likely will not qualify if you have even a modest nest egg.
In order to qualify for Medicaid, your income and your assets need to be below a certain threshold – one that offers very little wiggle room for most people.
Enter the estate attorney or well-meaning friend who tells you to “protect” your assets by somehow making them exempt from Medicaid’s limit. The idea, more or less, is to make yourself “poor” enough on paper to qualify for Medicaid, without actually being poor. Thus the conundrum is solved: you get affordable care and you get to keep your money.
If this sounds tricky, well… it often is. For one thing, many states use a five-year lookback period when determining Medicaid eligibility. This means that if you do any fancy asset-shuffling in the five years prior to applying, your efforts will have been in vain.
Still, if you can plan ahead and are willing to do your homework, there are various ways to “protect” your assets and save with Medicaid.
Three ways to protect your assets with Medicaid
This is one of the more complex options because annuities come in many different flavors, and some play nice with Medicaid while others do not.
In general, an annuity must be immediate, fixed and irrevocable (as opposed to deferred, variable or revocable) in order to be “Medicaid compliant.” If it is, any money you put into it will not count against your asset limit. Plus, you need not worry about the lookback period in doing so.
The catch – and it is a big one – is that the money is totally locked up, except for whatever periodic payment you receive from the annuity. And since that payment will count against your income limit, you may just find that you have jumped out of the frying pan and into the fire.
In most cases, any equity you have in your primary residence will not count against the Medicaid asset limit. So you could also protect your assets by putting them toward your mortgage or even upgrading your home – provided, again, that you do so at least five years before applying for Medicaid.
The catch this time (at least in Washington) is that the state can claim part of that equity to recoup care costs after your death. And even without that problem, putting your money into home equity will make it hard to get to. So be sure to do your homework ahead of time with this one.
This may be the most common and straightforward method – in fact, there is a type of trust designed specifically for it. A Medicaid asset protection trust (MAPT) allows you to hand your money over to someone else so it is technically no longer yours, and will therefore not count against your Medicaid eligibility. So long as the handoff is done 5 years before you go on Medicaid, that is.
Unlike home equity, money in a MAPT cannot be pinched by the government to recoup costs after your death. The drawback, however, is that you really cannot get to the money either. Your trustee is under no obligation to write you a check for groceries or new tires when you ask – in fact, in many cases it would be illegal for them to do so. So in effect, this option will leave you poor in reality and not just on paper!
Is cheap care worth it?
Now for the elephant in the room. No matter how complicated it may or may not be, remember that the end goal of this “asset protection” stunt is cheap healthcare. And that often applies to the quality of that care as well as its price!
I cannot say if all the horror stories about subsidized nursing homes are true, but they should give you pause. At the very least, ask yourself this: what are you trying to “protect” your money for? Is it worth all the aforementioned hoop-jumping and the risk of crappy care in your twilight years?
In some cases, yes. If you hope to leave a sizable inheritance to your heirs, for example, the sacrifice may be well worth it. But saving money for its own sake? Probably not.