Even if your health is good right now, you’ll do yourself and your loved ones a big financial favor by planning ahead for long-term care. If you should turn out to be one of the 7 out of 10 people over the age of 65 who need long-term care, how will you pay for it? Medicare does not cover long-term care, and most people do not have long-term care insurance. It would be a huge benefit and a huge relief to know that Medicaid will cover these ruinous expenses, wouldn’t it?
If you live in New York State, by planning now for the possibility that you will need long-term care in the community in the future, you could eventually save 100% of your money, income and assets. If you don’t plan, Medicaid will require you to use all of those assets to pay for your own long-term care (called “the spend-down”) before you can access the Medicaid system. If you require nursing home care, advance planning can save some or all of your assets, although in most cases you will not be able to protect your income.
When you do advance planning, you should consider different possible scenarios and contingencies from the beginning of the process. Plan simultaneously to protect yourself against the costs of home care and of nursing home care, even if you insist you’ll never go into a nursing home. Of course you should hope for the best, but it’s important to plan for the worst. If you don’t need nursing home care, the planning you did will not cause any harm, and will still be useful for other reasons. If you do need nursing home care, you and your family will be very glad you were financially prepared.
Advance planning for nursing home care is particularly important because, while the New York Community Medicaid application for home care and other services calls only for disclosure of current financial resources, the Medicaid Nursing Home application requires a five-year “look back.” Here’s how the “look back” works when you apply for Nursing Home Medicaid. To begin with, you must already have entered the nursing home, and you must already be “otherwise eligible” for Medicaid, meaning that your current financial resources are below the Medicaid limit. In the application, you must disclose all of your financial information and financial transactions going back five (5) years from the month in which the application is filed.
If you transferred money or assets to someone other than your spouse within the look back period, Medicaid will impose a period of ineligibility, called the “penalty period.” During this time, your family or friends will be required to find the money to pay the nursing home privately. Once the penalty period is finished, Medicaid will begin to pay your nursing home costs. [Note: besides transfers to your spouse, there are a few other exceptions where a transfer will not result in a penalty. These include transfers to a blind or disabled child, a trust for the sole benefit of a disabled person under the age of 65, or transfer of the home to a child under the age of 21.]
Medicaid calculates the length of the penalty period by dividing (a) the total amount of the transfers made during the look back period, by (b) a number Medicaid calls the “regional rate” for nursing home care in your geographic area. While the “regional rate” supposedly represents the monthly cost of nursing home care, in most cases it will be less than the actual cost of care.
Here is an example of how the look back and penalty periods work. Let’s suppose you gave your daughter a gift of $125,000, and three years later you entered a nursing home for long-term care. Medicaid would divide $125,000 by the regional rate for New York City, which is currently (in 2019) $12,419. The result would be that you are ineligible for nursing home care for approximately 10 months (125,000 divided by 12,419 equals approximately 10).
Using the above example, if the nursing home’s private pay rate is $15,000 (many facilities currently cost this much or more), the Medicaid penalty period would cost you $150,000. The $125,000 you gave to your daughter probably ended up being used to pay the nursing home bill, and the cost of care ended up being $25,000 more than the amount of the gift. A financial disaster like this can be avoided with good planning. Don’t make that mistake yourself.
There are Elder Law strategies you can use to protect some of your money, if you are “trapped” in the look back period and need to enter a nursing home. Still, in most of the cases such as this, you will sacrifice at least 50% of what you have, even with Elder Law planning.
As you can see, the most powerful use of asset protection strategies is with advance planning, before you need home care or nursing home care. You will avoid the possibility of losing some or all of your net worth to long-term care expenses, and ending up impoverished.
Here’s a good example of how planning in advance can help protect your life savings. We advised a healthy client who is getting older, but who does not currently need assistance. We transferred his house to a trust, so that in the event he does require long-term care and Community Medicaid benefits, his home will not be subject to a Medicaid lien.
Also, by planning early, we increased his chances of moving past the look back period, in case he wants to apply for Nursing Home Medicaid. If he eventually needs nursing home care after the look back period has expired, his transfer will be exempt. That means the equity in his home will not end up being an obstacle to his obtaining Medicaid, or subject to a Medicaid lien for the cost of his care. Instead, it will be fully available to his heirs after he passes on.
Take steps to preserve your finances and dignity while you’re still healthy, and not in need of professional care to help with your day-to-day living needs. Having the financial ability to maintain the lifestyle you’re used to, and your self-respect, is a kind of “medicine” that might be as vital to your well-being as anything you receive from doctors.