According to a recent Wall Street Journal article, anyone who intends to use Medicaid as part of his or her estate planning preparations needs to take special care as states continue tightening the restrictions on who is allowed to receive long-term care coverage under the program.
Medicaid is a program funded both by states and the federal government, and currently provides 40% of the long-term care spending in the United States. To be eligible for long-term care under Medicaid a person can own a home and a car, but otherwise cannot have more than $2,000 in cash assets. This $2,000 limit includes gifts you may have given in the past five-year “look back” period. To ensure that you qualify, there are specific Medicaid planning steps you will have to make.
Trusts: One step is to create an irrevocable living trust that transfers ownership of your property to the trust while naming you as beneficiary. The trust must allow you to receive as much benefit and protection as possible, yet it must also be irrevocable. This means that you cannot change the trust terms after you’ve created it. Further, the trust must be created outside of the five-year window required for Medicaid coverage.
Insurance: If you are concerned about long-term care and worry that you may not be able to meet the five-year gift window, you can also acquire long-term care insurance for that five-year time period. After the five-year period is over, you can terminate the insurance coverage and then use the trust to protect your assets as you apply for Medicaid coverage.