Aging is inevitable, and a gradual (or not so gradual) inability to function independently is a great concern for many people. While the prospect of entering a nursing home is a daunting one, equally frightening is the expense of nursing home care. Although purchasing long-term care insurance might be the most logical move, not everyone can afford the cost of its premiums. Many people feel that their only option is to spend down their life savings in order to private-pay nursing home care. Once this money has been exhausted, they’ll apply for Medicaid. But this isn’t the way it has to be. To qualify for Medicaid, both your income and the value of your assets must fall below certain limits, which vary from state to state. In determining your eligibility for Medicaid, a state may count only the income and assets that are legally available to you for paying your bills. Consequently, a number of tools have arisen to facilitate Medicaid qualification.
What are the goals of Medicaid planning?
Medicaid planning serves to accomplish a number of goals: (1) qualifying for Medicaid, (2) exchanging “countable” assets for exempt assets, (3) preserving assets (including the family home) for loved ones, and (4) protecting the healthy spouse (if any).
Qualifying for Medicaid
Qualifying for Medicaid is not automatic; your income and asset levels must fall below the threshold set by your state. However, a state may consider only the income and assets that are legally available to you for paying your bills. Medicaid planning helps you to qualify for Medicaid.
Exchanging countable assets for exempt assets
The term countable assets refers to anything valuable you own that is not exempt by law or otherwise made inaccessible; the total value of your countable assets (together with your nonexempt income) will determine your eligibility for Medicaid. Under federal guidelines, each state composes a list of exempt assets. It is possible, therefore, to rearrange your finances so that countable assets are exchanged for exempt assets (or otherwise made inaccessible to the state).
Preserving assets (including the family home) for loved ones
Why are so many people averse to simply liquidating their assets to pay for nursing home care? After all, Medicaid will eventually step in (in most states), once you’ve exhausted your personal resources. The reason is simple: People want to financially assist their loved ones. After working long hours for many years, over the course of a lifetime, most people don’t want to see their nest eggs vanish; rather, they want to be able to pass something down to their loved ones. And this can be particularly true with respect to the family home, which is often the single largest asset a nursing home resident might own.
Protecting the healthy spouse (if any)
With respect to a married couple, financial protection of the healthy or at-home spouse is always an important concern. A married couple’s assets are pooled together when the state is considering the eligibility of one spouse for Medicaid. The healthy spouse is entitled to keep a spousal resource allowance, which generally amounts to one-half of the assets (not to exceed $120,900 in 2017). This really isn’t much money, especially if the healthy spouse is a younger woman (who’ll probably live much longer anyway because of her gender). Medicaid planning seeks to financially assist the healthy spouse.