As Americans live longer, long-term care is becoming an unavoidable expense. Without the funds necessary to cover years of nursing homes and hospital bills, many people must rely on Medicaid. After a Medicaid recipient has passed, however, families may find that Medicaid is entitled to the home that family members expected to inherit. Understanding the effects Medicaid has on a person's will, estate and trusts will help families navigate the complicated process of estate planning.
Medicaid's impact on wills
A will is a document that explains where a person's assets are supposed to be distributed after their death. For those who received Medicaid funding during their final years, however, paying back Medicaid supersedes the asset distribution requested in the will.
"There's not going to be much that passes through [the Medicaid applicant's] will," says Anthony F. Copani, Esq., Mannion & Copani founding partner. "They have to spend down to obtain Medicaid, and Medicaid is going to have a lien against the balance of that estate."
What happens to the estate?
Essentially, Medicaid has the right to the Medicaid recipient's remaining assets until the balance of their care has been paid off. Often, a lien is placed on the home, which is typically the applicant's most valuable asset. As Medicaid is intended for people who cannot afford to cover their own health care expenses, there is also a limit to how much money an applicant can have in savings. "The amount of resources that a single person can keep and be eligible for Medicaid [in New York] is $14,850," said Copani. "That means everything above that amount, including their home ... will be lost, unless you've done the proper planning to ensure you lose as little as possible."
There are a number of noteworthy exceptions to this rule. In the case of married couples, there may be a "community spouse" whose health allows him or her to remain in the home while the "institutionalized spouse" must reside in a nursing home. In those circumstances, Medicaid makes allowances so that the community spouse is often able to continue living comfortably in the same home. Similarly, exceptions can be made when the Medicaid recipient has children who are blind, disabled or under 21 years of age.
Given the high cost of long-term care, the government naturally seeks to recuperate some of the funding it has paid out for Medicaid recipients. Even so, there are allowances intended to protect families from undue hardship. "If you were to sit down and talk to anybody in the Medicaid system, they're not going to point out [undue hardship exemptions] to you," says Terence A. J. Mannion, Esq., Mannion & Copani, founding partner. "Without an attorney, you'd have no ideas of what your rights are and what you would need to do to protect your assets."
Fortunately, there are ways to protect family assets, even when a family member is suddenly in need of long-term care. The longer you live, the higher your chance of needing a long-term care facility, so it's a good idea to start planning in your early 60s. The most effective way to protect assets is with an irrevocable trust.
Different kinds of trusts exist, and some provide no protection at all from Medicaid, so it's important to speak with an expert. Pre-tax assets, like traditional IRAs and 401(k)s, cannot be protected by family trusts. Medicaid's five-year look-back also disqualifies some applicants who have transferred funds within five years of applying.
Attorney fees are one of the acceptable ways to spend down assets, so the cost of legal counsel may be paid from funds that would otherwise have gone to health care expenses or Medicaid.
Tony Copani has focused his practice on serving the needs of families for Medicaid Law and protecting the family fortune for over thirty years. As a founding partner at Mannion Copani, Tony immediately gives families peace of mind when they learn it's never too late to save your money and protect your assets.