Clients and prospective clients often ask me about legal options available so that they might qualify for Medical Assistance in the event they need nursing home care at some time in the future. Some suggest gifting to their children during their lifetimes, while others suggest establishing an irrevocable trust known as a “Medical Assistance” trust to protect their assets.
This is a very tricky question, and if you are considering this approach I would strongly urge you to read the following article recently published in the personal finance section of the Forbes website: Beware of This Financial Advice About Aging Parents.
While there are different types of irrevocable “Medical Assistance” trusts available, there are many drawbacks to this type of planning, including the loss of control over assets, uncertainty as to whether this type of trust will ultimately be effective in the end, and the high cost of establishing this type of trust. You must be very careful with gifting, as there are limits on the amount that can be transferred each year without incurring certain gift tax consequences, and also due to the possibility that your assets would then be subject to the lawsuits and other creditor claims of your children. Further, there is a “look-back” period for the transfer of assets within five years (in the future, this may be seven) from the date a person attempts to qualify for Medical Assistance. Finally, please remember that Medical Assistance (i.e., Medicaid) is a welfare-based program and that qualification for this program may severely limit the health care options available to you when the time comes.
Often, there are better alternatives. For example, there are some great long-term care options now available that can protect your investment and offer a guaranteed death benefit – even if you never use your policy. In the alternative, your financial advisor may be available to re-structure your assets so that they can provide a lifetime income stream. Further, an Irrevocable Life Insurance Trust can be set up to replenish your estate in the event your assets are depleted by long-term care costs.
If you are concerned about nursing home costs, please talk to your estate planning attorney and a trusted financial advisor about your options before making any decisions you might regret in the future. Remember, your primary objective should be to take care of yourself (and your spouse) first.