The largest potential expense as we grow older is the cost of long-term care. According to the New York State Partnership for Long Term Care, the annual cost of a nursing home stay in the Mid-Hudson Valley is $434 per day, or about $159,000 per year.
There are generally three methods by which the cost of long-term care is paid: from savings, longterm care insurance, and government subsidies (commonly referred to as Medicaid). Medicare does not pay for the expense of residential care in a nursing home.
The Medicaid program provides for payment of nursing home costs for those who have a medical necessity and are indigent. To qualify under the Medicaid definition of indigency, the spouse in the community may maintain assets of $74,820, and the spouse entering a long-term care facility may maintain assets of approximately $16,800. A single person may maintain assets of approximately $16,800.
DETERMINING MEDICAID ELIGIBILITY
In addition to these amounts, certain assets are considered exempt in determining Medicaid eligibility. The exempt assets include the primary residence (so long as a spouse intends to reside in the house or, in the event the spouse is not living in the house, the nursing-home bound spouse intends to return to the house), an engagement ring, a $1,500 life insurance policy, and an irrevocable pre-planned funeral arrangement.
Retirement assets are also protected from being included in the value of your estate for Medicaid purposes, although the distributions will be part of your income, which might reduce the monthly payments made by Medicaid. However, inherited IRAs and Roth IRAs might not be protected.
A frequent method to make oneself indigent is to gift your assets. Gifts made within five years of the application for Medicaid will result in a period of ineligibility based upon the gift’s value. As a general rule, a person who makes a gift is ineligible to receive Medicaid for the length of time the assets gifted would have lasted, commencing on the date of the Medicaid application. Computation of how long the assets would have lasted is based on the Medicaid computation rate at the time of application. Currently, that rate is $13,339 per month. This is best understood with an illustration. If they transfer $133,990 away at the current time, at such time that you apply for Medicaid, they will be ineligible to receive Medicaid for 133,990 ÷ 13,399, or 10 months.
During the period of ineligibility for Medicaid, it will be their responsibility or the responsibility of their family to provide for the cost of the nursing-home care. If we do create a trust for their benefit, it is necessary that they only are permitted to receive the income from the trust and not the principal.
I previously stated the home is an exempt asset in determining Medicaid eligibility. The issue arises that once the house loses its exempt status (i.e., the death of the spouse), its value could be subject to a Medicaid lien, which would result in the house being sold and proceeds utilized to satisfy that lien.
I often utilize an irrevocable trust to become the home’s owner and sometimes a portion of your investment assets. Upon transfer of the property to the trust and the expiration of a five-year look back, the assets will be exempt from being included in the determination for Medicaid eligibility. Under the terms of the trust, the trustee will be able to sell the assets in the trust and replace the real estate with a different home. In addition, the trustee will be permitted to pay the income earned by the trust, including rental income, to you on a periodic basis. Furthermore, any liquid assets in the trust may be used to pay expenses relating to the real estate owned in the trust. Upon their death, the real estate will transfer in whatever way they choose. The trust is irrevocable; therefore, once the assets are transferred into the trust, they cannot be removed. The irrevocable trust allows the home to maintain its STAR and other exemptions as if the grantor had retained the ownership.