Many of our clients feel uncomfortable discussing the risk of running out of money should they require living in a nursing home.
As advisors, it’s our responsibility to help you understand just how expensive long-term care is, and that failing to plan for it jeopardizes your senior years and possibly creates an enormous financial burden for your loved ones.
Typically, there are three ways to pay for nursing home care:
1. Self-Pay – The nursing home expenses are paid out of pocket. This option is vastly unaffordable to most clients.
2. Long Term Care Insurance – This is essentially a wager between a client and an insurance company. The client pays premiums assuming he or she will eventually need nursing home care. The insurance company bets that your client won’t need the coverage and that it can keep all the premiums.
3. Qualifying for Medicaid (Medi-Cal in California) – This government assistance program helps low-income seniors who require nursing care. About seven out of ten nursing home patients receive Medicaid (Medi-Cal) benefits.
For those who face option 3, your financial security is at risk. The government reviews an applicant’s financial records for the five years prior to the application to determine eligibility. Records indicating uncompensated transfers, such as a parent adding a child’s name onto a house title or transferring money to someone for free, can be used to disqualify the applicant.
Rules and Requirements
Currently, the eligibility rules for Medicaid limit an applicant’s assets to $2,000 in cash. Homes don’t count in the asset calculation, though there is a cap on home equity if the applicant is single that varies from $560,000 up to $840,000, depending on the state. Medicaid can also tap your estate for repayment under certain circumstances.
If an applicant is married, then your spouse is allowed assets totaling about $120,000 without affecting Medicaid eligibility for the one requiring nursing home care.
Your monthly income limit is about $2,250 per month (this varies from state to state). But what if your income is $2,500 per month or $3,500, or $4,500? These amounts won’t cover the costs of long-term care but they will disqualify you from Medicaid eligibility.
There is a planning strategy to help clients with too much income to qualify for Medicaid. The Qualified Income Trust (QIT), sometimes called a Miller Trust, is an account where a person deposits income – pensions, Social Security benefits, job earnings – and can still be eligible for Medicaid to pay for nursing home care.
It is an irrevocable trust with all the rules and regulations that govern them. In some states, a trustee must be appointed to manage administration of the trust and expenditures from it.
Timing Is Everything
Unlike a Medicaid Asset Protection Trust, you don’t set up a QIT several years in advance. Instead, it’s set up during the first month you are in a nursing home, with an accompanying bank account that’s used specifically for the trust.
The account pays you a monthly personal needs allowance which varies by state, from $35 in Florida to $50 in Colorado.
The money left in the QIT after the allowances are paid, along with your Medicaid qualifying income, goes to the nursing home. Medicaid covers the difference between what you paid and the nursing home’s charges.
Repayment to the State
When a you pass away, the state receives all the money left in the QIT up to the amount that Medicaid paid on your behalf.
The rules vary from state to state, but this strategy can be used to enable you to qualify for Medicaid and protect your income from evaporating.