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Medicaid: Is It In The Future For You Or Your Parents?

By John Dietz - Email Editor

Date : June 3, 2008

Dear Valued Reader,

Medicaid: Is it in the future for you or your parents?

To illustrate that times have changed, the case in point for this newsletter is on the “boomers.” The boomers, who are reaching their 50s and 60s, now critically evaluate the status of their long-term health care. They are evaluating the “M” word, M for Medicaid. There is a relatively new type of planning on the market these days and it is Medicaid Planning. The controversy and call for examination in Asset Protection is to protect one spouse from the other in terms of long-term health care. We tackle the question, “Will Medicaid be of assistance or will it harm your estate?”

Medicaid provides benefits for long-term nursing home care, and, in a number of states, benefits for other types of long-term care. The federal government and the individual states fund the program jointly. This is not to be confused with Medicare, the program for health insurance for people over 65 or people on Social Security Disability. Medicare is a medical insurance program, and except for a limited short-term nursing home benefit, does not provide coverage for nursing home or other long-term care.

It is uncanny to fathom that a happy, loving couple needs to be protected from each other, but it is true. I like to think of it as: There is strength in sovereignty and this is a good start in all Asset Protection and in Medicaid Planning.

Medicare, which does not cover the long-term nursing home, is short term and in order to qualify, you must have been admitted to the hospital for at least three days and require some ongoing therapy. Technically, there is a 100-day limit. Medicare does not provide any long-term basis nursing facility or care giving and does not cover medications when in a nursing facility over the first 100 days.

Many people want to know answers to questions regarding how Medicaid qualifies recipients based on their assets and income. It is possible that a state will have the right to claim the marital house if only one spouse lives in the house or if the recipient dies owing Medicaid money. This depends upon the individual state and there may be limits as to what extent, or how much worth, Medicaid can seize from the estate of the deceased recipients.

The first and most important goal of Medicaid Planning is to choose an option that works. Many planners devise creative ways to evade taxes with trusts and shift income; rarely do these options work. Every income bracket has its own set of solutions and thus gifting and shifting necessitate examinations to reveal; solutions and potential problems in qualification. The rules to qualify for Medicaid are very complicated and one law on paying taxes in the US remains the same year after year; all US citizens must pay taxes on all income earned worldwide.

The cost of long-term care, as well as the quality or standard of care is always the paramount concern. You may think that the issues of Medicaid are for the lower class, but they affect all who have not planned. The current Federal standard is $1,911/mo though (300% of the SSI benefit).  Qualifying amounts and deductions are complicated. In some states, there are shared responsibilities falling under income, health care and Medicaid jointly. The disbursement proportions are a state matter; each state delineates the amount of invasion on the ill spouse’s estate. It is possible to prevent this invasion of the home and marital assets with proper planning, through trusts, insurance, pensions and annuities. By taking the proper steps, the results will be a better quality facility care and privacy without the financial intrusion of the nursing home or state. Bear in mind that only some states have a “cap.”

Featured Link - For those who reside in Florida Click Here for Attorney William Johnson's, Flordida Bar Certified Elder Law article with some specifics on Florida State Medicaid issues.

Now onto the advice for the solutions, forearmed is forewarned when it comes to Medicaid! This is just an overview.

Federal law states and protects spousal impoverishment from being the negative consequence of an ill spouse’s long-term care. There are legal strategies allowing for the protection of the assets to maximize the amount a well spouse is permitted to retain for retirement. The protection methods are legal as long as you adhere to the rules.

Only a well-educated planner should construct the plan and an accountant and attorney with expertise and a specialty in this field are necessary for consulting. Here are some potential strategies.

2. Reduce the income of each spouse by using life insurance, cash valued annuities and trusts with income caps. These methods may also provide additional protection from creditors.

3. Revocable trusts do not provide a barrier for the state’s invasion of income in Medicaid cases.

4. Gifting, rather than shifting may preserve the estate, however, shifting rather than gifting may preserve the state. The point is that there is a clear-cut difference in taxation. These strategies likely depend on your income bracket, the value of your estate and the time that you enact your plan.

5. Understand that the IRS can seize a property and remove anyone from its premise. The IRS can take your home if a US District Judge orders the seizure in writing in accordance with the Taxpayers Bill of Rights. It is advisable to pay your due taxes and avoid IRS problems.

6. Protect each spouse from the other in death, illness, long-term care and divorce. Even after marriage, it is not too late for side-by-side trusts or postnuptial agreements. Income capped trusts may also be appropriate, keeping in mind that all income is taxable. Irrevocable and offshore trusts may provide added protection from creditors.

If the income is not distributed to the beneficiary, the trustee of the trust is obligated to file a 1041 fiduciary tax return. The trustee must report the income earned in the trust as trust income on which the trust will owe income taxes. The tax brackets for the entity of a trust increase more rapidly than those for an individual return. The grantor of a trust is not able to lawfully assign his or her earned income to a trust to avoid income taxes.

8. Make sure your home is titled properly. Overlooking a mistake on a deed can be costly. Since retired people often have winter and summer homes, the state of residence is a gigantic consideration, especially in some states, such as Florida, where the Homestead Exemption is considerable. In other states, this exemption is worthless.

Some states honor Tenants by Entirety, which means that each spouse is individually the sole owner of the property and this may provide creditor protection as long as the legislation stands. (Some states have eliminated this exemption from creditors.) This is not a solid concept for protection, although it can also work.

The true moral of the story is that no one is too rich or too poor to review their life-long plan as they pass through the stages of life. We understand how incredibly complicated the intertwining of life and business matters have become. This is why we advocate education and put our best efforts forth in the protection of your estate, your families and your assets.

Until next time,
 
John

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