- Free Consultation: (586) 264-3756 Tap Here to Call Us
The importance of Medicaid planning
If your parents are at the age when illnesses and medical conditions are a concern, you will have worries about the costs of long-term care. One of the biggest problems confronting senior citizens today is the extraordinary cost of this care. Such costs can exceed one’s entire lifetime savings. When proceeds come to an end, the only option may be to apply for Medicaid.
However, while Medicaid does pay the costs of long-term care, eligibility is complex. One of the eligibility requirements is that the amount of assets your parents can own individually and jointly is extremely limited.
“Look-back” period
There are a variety of ways to protect your parents’ assets without jeopardizing Medicaid eligibility. However, it requires significant planning to accomplish this goal. And it’s not something you will want to do yourself. When your parents apply for Medicaid, the Deficit Reduction Act of 2005 grants Medicaid personnel the authority to minutely scrutinize all of your parents’ financial or financially related documents. These personnel can look back five years to scrutinize property transfers or other financial transactions that may indicate an attempt to reduce the amount of assets to qualify for Medicaid benefits. Suspicious transactions could result in denial of your parents’ application.
Irrevocable trust
Your best strategy is to encourage your parents to start planning now. While many planning tools exist, one of the best is an irrevocable trust. The moment your parents place chosen assets in an irrevocable trust, they no longer own them personally. The trust owns them instead. While no longer owning the assets, they can in the right circumstances receive income from any income-producing assets within the trust.
Creation of an irrevocable trust is an extremely serious decision on your parents’ part. As its name implies, once they transfer their assets into the irrevocable trust, they cannot revoke it or change it. They must rely on the trustee to provide for them in accordance with the trust’s provisions. For this reason, choosing the trustee is a critical decision. Some people designate a trusted adult child as their trustee, and others designate a bank or financial institution. Still others designate their family attorney.
It’s important to strongly encourage your parents to think carefully about Medicaid planning. Everything must be in place at least five years before your parents apply for Medicaid, and five years is not a very long time.