Even if you save prudently for your retirement years, these funds can be wiped out in a matter of only a few years if you require nursing home care because of a stroke or another unforeseen medical problem. One way to prevent this from happening is through effective Medicaid planning.
Medicaid planning can limit the amount of money that you must spend on medical care, and it even applies to people with substantial assets. Ultimately, this type of estate planning makes certain assets “inaccessible” when the government is determining whether you qualify for Medicaid.
Medicaid planning typically involves several steps, one of which may include establishing a Medicaid trust. The purpose of a Medicaid trust is to meet the income requirement for Medicaid eligibility while at the same time setting aside some of your estate for your heirs such as a spouse, children or grandchildren.
Medicaid trusts are considered “irrevocable” trusts because this kind of trust cannot be changed or taken back by the person who created it. When determining Medicaid eligibility, trusts that are revocable are counted as part of the applicant’s assets.
Once a Medicaid trust has been created, the “grantor” or creator of the trust will have access to the income earned on the principal, but not the principal. The principal is then distributed to the chosen beneficiaries upon the grantor’s death.
The creator of the Medicaid trust must make sure that he or she has enough funds to provide for him or herself outside of the trust, which is why this is an option that is best discussed with an experienced estate planning lawyer.
Remember, it’s important to create a Medicaid trust as soon as possible as there is a five-year look-back, which means that the assets in the trust are not considered “inaccessible” until five years have passed since they were transferred.
Read more about Medicaid trusts here, or meet with one of our experienced estate planning attorneys for personalized advice.