Estate Planning

Estate Planning is setting up a plan to address how your assets are to be distributed when you pass away, and how you can get from here to there.

Medicaid Planning

Medicaid Planning is part of getting from here to there.  Medicaid Planning involves legal and financial planning positioning to preserve your assets if you need long term medical care and how to use Medicaid to pay for your care.

1. Estate Planning can use a will or a trust

When planning your estate, you can use a will or a trust to dictate how assets should be distributed.  Whether you want, or need, to use a will or a trust is a discussion for a different blog, or a discussion you should have with an experienced estate planning attorney.

1. An Irrevocable Trust is what protects assets for Medicaid Planning

Although it is not the only way to protect your assets, an irrevocable trust is a planning tool that will protect your assets from Medicaid.  An irrevocable trust creates a legal wall of separation between you and your assets, so that you are no longer the owner of your assets, but rather the trust owns your assets.

To gain the necessary degree of separation between you and your assets to protect them from Medicaid, you should not be the trustee or beneficiary of a Medicaid asset protection trust.  Instead, you pick someone who is trustworthy, like your children, to be in charge of this trust.

Of course, there are circumstances where you may be able to be set up as a beneficiary of a trust if the trust is constructed with you as a beneficiary only for your supplemental needs, but naming you as a beneficiary may then create problems for other programs that pay for long term care, like the VA Aid and Attendance program.

Choosing how to structure a trust to protect assets is an important decision, and should be a conversation you have with an experienced estate planning / medicaid planning attorney.

2. Generally, timing is not a huge consideration

When you set up your estate plan, you want to meet the two threshold requirements:

• You are Alive
• You are mentally competent

While these may seem like fairly simple tests to pass, you want to set up your estate plan before you have mental capacity questions, as you don’t want someone who does not understand what they are doing to be making an estate plan.  Instead, you want to plan ahead, so that your survivors do not need to question whether you could make an estate plan.  Once you have an estate plan established, there generally are not time frames to consider in implementing the estate plan…once the plan is created, signed, notarized, and fully executed, it is in place and is ready to go.

2. When planning for Medicaid, you need to be concerned about the look back period

Oddly enough, Medicaid is not exactly keen on paying for long term medical care if someone has assets and can pay for the long term care themselves.  Medicaid has established a 5 year look back period to combat the practice of moving assets out of your name.

The 5 year look back period means that if you transfer assets out of your name – to your kids, or to a trust – and do not receive full fair market value in return, Medicaid will count such a transfer against you for the 5 years prior to when you apply for Medicaid.  If you have transferred assets out of your name for less than full fair market value in the five years before you apply for Medicaid, then Medicaid will take the value of the transfer and calculate a penalty period for which you will not be able to receive Medicaid.  This means that ideally, you would transfer assets out of your name more than 5 years prior to needing long term medical care and applying for Medicaid.

Of course, nobody can know exactly when you might need long term care, so this is an inexact science.  You need to balance the need for long term care to be paid for against the time involved and when you give control of assets to someone beside you, as you likely want to be able to use your own assets and have control over your own assets while you still can.  This can be a fine line to walk – balancing control of your assets with protecting them against long term medical costs.  Certainly giving up control of your assets is a drawback to Medicaid Planning, but it may be worth it to preserve your assets for future generations.

3. Setting up an Estate Plan requires you to choose who will be in charge

When you set up an estate plan, you need to choose who will be responsible for distributing assets at the time of your death.  You also need to choose who will make financial and medical decisions on your behalf if you are unable to make those decisions.  Choosing who will handle these things for you is quite important, as you want to choose someone who is trustworthy and capable of handling these matters.

3. Setting up a Medicaid Plan requires you to choose who will be in charge

Similarly, when setting up a Medicaid Plan, you need to choose who will be in charge of distributing assets when you die and making decisions for you if you are incapacitated.  You also would need to pick someone to handle and control your assets and use them wisely while you are alive.  Since you are giving up control of your assets while you are alive, you must carefully pick someone who is trustworthy and capable of doing the right thing for you.

4. Estate Planning is very flexible

When you set up an estate plan, you have a lot of flexibility.  You can choose who receives assets when you die, how those distributions shall be made, and who can make decisions for you.  With some constraints, you can do most everything you want to do with an estate plan.

4. Medicaid Planning can be flexible, but there are more rigid rules to follow

When you set up an advanced Medicaid plan, you have flexibility on who you choose to receive assets and who you leave in charge, just like in an Estate Plan.

However, Medicaid has very strict rules on what counts as an asset to you.  Medicaid will want you to have $2,000 or less in countable assets to your name.  Some assets are exempt, like one care, or a house up to a certain amount of equity, but cash or investment assets are counted as available resources for you to use in paying for your own long term medical care.

A trust is also not the only way to plan for Medicaid.  There are financial planning tools, such as Medicaid compliant annuities that can be used to help protect assets, and you definitely want to work with an experienced financial planner if you want to explore this route.  I am not a financial planner, but I can certainly refer you to someone who can help with this type of planning, if you would like to explore this route.