If you have aging parents or other relatives whose care is likely to become your responsibility, now's the time to do some Medicaid planning. For an understanding of what's involved, let's follow Rosa as she discusses the subject with her financial adviser.
When her mother Rita became ill, Rosa suspected a huge test of her resourcefulness was on the way. Although Rita's condition improved, placement in a nursing home could be necessary down the line. Rosa's financial adviser explained that long-term care insurance wasn't an affordable option because of Rita's age and health, but there was still time to mitigate much of the financial havoc her condition could wreak. Doing so needs to start with Medicaid planning.
Rosa's adviser emphasized that Medicaid is the general banner under which each state provides free or low-cost medical and long-term care coverage. The federal government subsidizes Medicaid, but each state sets its own eligibility criteria.
Medicaid differs from Medicare. The latter is a federal program that provides health-care coverage primarily to seniors, and it includes only short-term care coverage -- up to 100 days of "skilled nursing" care per event, such as a stroke or broken hip.
Preserve and qualify
Essentially, each state has an income threshold under which an individual may qualify for Medicaid. Rosa's adviser warned that many people desperately "spend down" their assets to become eligible. Doing so, however, can devastate both that person's and his or her family's finances.
The purpose of Medicaid planning is simple: Rosa and her adviser would target ways to preserve as much of Rita's assets as possible, while also working to ensure that she can legitimately qualify for the assistance she needs.
Transferring assets out of Rita's estate may seem an obvious move. But under the Deficit Reduction Act of 2005, Medicaid administrators in every state look back 60 months to count most transfers as available resources for nursing home care. So their planning efforts must be long-term and cognizant of such rules.
One option Rosa's adviser mentioned is creating an irrevocable trust. Under this arrangement, Rita would surrender control over the trust so that the assets therein could be considered removed from her estate. Irrevocable trusts are sophisticated and come in various forms, so Rosa and her adviser would have to discuss the idea further.
Caring for an aging relative means there's a lot to think about. But getting started early should make it a bit easier and less costly -- both emotionally and financially.
Norm Grill is a certified public accountant and managing partner of Grill & Partners LLC, accountants and consultants to closely held companies and high-net-worth individuals, with offices in Fairfield and Greenwich. He can be reached at n.grill@GRILL1.com.