Many Americans spend years accruing assets and building an estate. Typically, as they age, adults start to think about how those assets will support their loved ones, including children and grandchildren. Assets that represent a life's work can be a source of pride and allow older adults to leave behind a lasting legacy for their families.
However, medical issues and the need for nursing care can often destroy those legacies. While working adults may have paid into the Medicaid and Medicare systems for decades, they may not receive adequate benefits if they have substantial assets. When they die, any amount that remains could end up seized to repay the government for any benefits they did receive. That could destroy their planned legacy and leave their families struggling to cover end-of-life expenses.
Planning as soon as possible can reduce financial risk
It is never too early to consider long-term care needs. In fact, starting the planning process when you are younger and still healthy is always the best option. If you wait until nursing home care is in your near future, you may not have the option of shielding your assets or getting the support your need to pay for that care without destroying your legacy.
If you are young enough when you start planning, you may be able to secure a long-term care insurance policy. Many older Americans do not qualify for this kind of protection anymore, however. For them, the only insurance option may end up being Medicaid. However, if you intend to use Medicaid, you need to plan ahead.
One of the most popular ways of protecting your assets is often in the creation and funding of a trust. Other people may make financial gifts to their families and loved one. Doing so can diminish their personal assets and help them qualify for Medicaid. Depending on the timeframe, however, those transferred assets could still end up in the possession of the government.
Medicaid reviews your recent financial history
However, it's important to know that there is a look back period for Medicaid coverage. Any gifts or transfer of funds in the five years prior to the application for Medicaid are subject to reversal or financial penalties. In other words, you need to have a plan in a place, a trust created and gifts distributed to family at least five years and one month before you apply for Medicaid.
Even if your gifts meet financial laws regarding taxable financial gifts, you may still end up incurring a Medicaid penalty. That Medicaid penalty will basically involve dividing the amount you gifted or transferred into a trust by the average monthly nursing home cost in your area. The end result is the number of months those funds would have covered. You will then not have the option to receive Medicaid benefits until after that many months.