How to Shield Your Assets from Nursing Homes With an Irrevocable Trust
Put a plan in place to cover future long-term care.
While it's not the most pleasant topic to think about, the reality is that most of us will require long-term care eventually, and for many, that will come in a skilled nursing facility. Unfortunately, the cost of nursing home care is very high, and Medicaid funding for nursing care is only available to people of very limited financial means. If you control significant assets and want to be eligible for Medicaid to pay for a nursing home, you need a plan in place.
One way to make sure you can afford a nursing home while still protecting your assets is to place them in an irrevocable trust. This is a useful option for many people, but it's also not a decision to be made lightly. Talk to an experienced estate law attorney to make sure you know your rights and options.
How Medicaid eligibility for long-term care works in Arizona
Medicaid is a federally funded but state-managed program that pays for medical expenses for people with limited income and assets. In Arizona, the Medicaid program that covers long-term care, including nursing homes, is called the Arizona Long-Term Care System (ALTCS).
There are two financial limits to be eligible for ALTCS coverage: income limits and asset limits:
- The asset limit for individuals applying for ALTCS is just $2,000. If you have assets in excess of $2,000, even just one cent over the limit, then you are ineligible for ALTCS. For married people, the calculation is more complex: if only one spouse needs Medicaid coverage, then the other spouse can have up to $148,620 in assets. However, if both spouses need nursing home care, they must each have no more than $2,000 in assets in order to both qualify for Medicaid. The asset limit also excludes certain assets, including one primary home, one motor vehicle, pre-paid burial plots and funds, some types of life insurance, pets, and certain personal items such as your wedding ring.
- The income limit for the ALTCS is $2,742/month for individuals and $5,484/month for married couples. This calculation is based on your gross (pre-tax) income. As with the asset limit, there are additional complexities if only one spouse requires nursing home care.
How an irrevocable trust can protect your assets from nursing homes
If you are over the asset limit to qualify for Medicaid, then you will need to pay out of pocket for a nursing home until you have spent enough of your assets to fall below the limit. This essentially means that the funds you have worked hard to earn and save throughout your life may be drained to pay for long-term care instead of going to your heirs. If you want to avoid this scenario, one powerful tool is an irrevocable trust.
Assets that are in an irrevocable trust no longer belong to you as far as Medicaid is concerned. By transferring enough assets to an irrevocable trust to fall below the Medicaid eligibility limits, you can preserve your legacy while ensuring that Medicaid will pay for your long-term care. If your income is above the Medicaid limits, you can likewise assign some of your income to an income-only irrevocable trust (also called a Miller trust), which again helps you to become eligible for Medicaid while protecting your financial future. Putting assets in trust also has broader benefits for your estate plan, such as avoiding probate and protecting your privacy.
There are certain downsides to using an irrevocable trust to shield your assets from nursing homes. First, as the name implies, once you put an asset in an irrevocable trust, you can't take it back; it's a one-way transfer. Depending on the circumstances, the tax implications of an irrevocable trust may or may not be in your favor. Moreover, you will need to hire a trustee to manage the trust and a tax professional to file a separate tax return for the trust.
An experienced estate planning attorney can explain all your options
An irrevocable trust is a powerful tool, but it's not your only tool to qualify for Medicaid. There are other options that may be available as well, depending on your circumstances and your estate planning goals. However, you need to act quickly.
Medicaid's "lookback period" to determine whether you are eligible is five years, meaning that you can't just transfer your assets to an irrevocable trust or give them away to a family member right before you need to enter a nursing home. The ALTCS will look at any gifts or transfers you made in the last five years and delay your eligibility until five years have passed since you dropped below the asset limit. Even if you are in good health and don't anticipate needing long-term care anytime soon, five years is a long time, and all it takes is one unexpected injury or illness.
The sooner you have a plan in place, the better. Make sure you protect your legacy and provide for your future medical needs. Contact the experienced Arizona estate planning attorneys at Brown & Jensen today to discuss your options.