According to the U.S. Department of Health and Human Services, a person turning 65 has nearly a 70% chance of needing some type of long-term care for their remaining years. The problem is, how do you pay for it?

The cost for nursing homes, in particular, can be astronomical. The average cost for a private room is $8,365 a month, and $7,441 a month for semi-private. That’s why many seniors turn to Medicaid, a program that helps people in need pay for long-term care. But Medicaid’s rules and regulations are complex and often confusing, and making a mistake could mean losing out on benefits or having them taken away. To help make the process easier, here’s what you need to know about Medicaid planning.

Assets are the key

For Medicaid, your personal assets are the determining factor in the application and approval process. The program was created in 1965; unfortunately, the asset limits set back then haven’t been adjusted for inflation, so they’re extremely low by today’s standards. To qualify for Medicaid benefits in Illinois, a person who is single can have no more than $2,000 in assets. For Medicaid recipients in long-term care facilities, those facilities will take all but $30 a month of residents’ Social Security or other income to pay for their care.

Knowing whether your assets put you over your state’s exemption limit is crucial. If that proves to be the case, an attorney can help you set up your estate in a way that strategically allows you to apply for Medicaid down the road.

Protections for spouses

Once their partner enters long-term care, it’s important that the healthy spouse has enough money to remain in the community. To help with this, Medicaid provides “spousal protections,” a set of rules that allow spouses of nursing home residents to keep enough income and assets to live on. Spousal protections vary by state, but the basic guidelines are the same for all.

In Illinois, the non-Medicaid spouse can keep up to $2,739 of income per month from their Medicaid spouse. They can also keep their family home, its contents (except collectibles) and their car, no matter the value (so maybe it’s time to upgrade the family home and splurge on a Tesla?). As far as other assets, the non-Medicaid spouse can have cash and investments of up to $109,560.
Penalties for gifts

Medicaid is designed to help seniors with limited incomes, so to prevent applicants from simply giving away their assets to qualify, the government created a “look-back period.” This is a set period that Medicaid looks at to review all transactions. Any gifts or transfers of assets made within five years of a candidate’s application are subject to penalties. This includes everything from wedding gifts and college tuition to gifts of artwork, cars, homes, and other gifts to family members. If a transaction is found to be in violation of these rules, Medicaid will not pay for an equivalent amount of care. So, for example, if a Medicaid applicant gave away $15,000 worth of gifts within five years of application, Medicaid would not pay for the first $15,000 of care.

The reason for the penalty period is that these items are seen as assets that could have helped to cover the cost of long-term care if you hadn’t gifted or transferred them. One more reason why it’s important to put Medicaid planning strategies in place well in advance to help avoid potential future liabilities.

Limited exemptions to the gift rules

Medicaid does permit some exceptions to these rules, but the devil is always in the details. There may be situations in which the Medicaid applicant can transfer his or her home to a “caregiving child” without running afoul of the rules. However, that child must have lived with the applicant for at least two years before the transfer and provided a nursing-home-level of care. Other exclusions include paying children to provide care pursuant to a written contract, certain funeral-related purchases, gifts to disabled children, “gift and annuity” transactions, and several others. We strongly encourage you to check with an attorney with extensive experience in this area of law, since the consequences of doing something wrong can be severe.

The importance of advance planning

Did you know that when you apply for Medicaid, you need to provide your last five years of bank statements and/or financial statements on all of your accounts? If you don’t already have them, they can be expensive to get, since banks charge hefty fees for copies. The bottom line is, it’s easy to make simple mistakes in the application process that can cause you to miss out on benefits – or worse, require you to pay them back.

Working with an experienced attorney who specializes in Medicaid and estate planning can help put you in the best possible position to receive assistance when you need it in the future. They can help you put strategies in place to shelter your assets. They can also help you create a power of attorney specifically for Medicaid recipients. That way, if you suffer a stroke, dementia or become otherwise incapacitated, your designated loved one can act on your behalf.

It’s also possible that, if you’re below the specified asset limits and live simply, you may not need our help. Many nursing homes and providers offer assistance with Medicaid applications at little or no cost. But it’s important to be aware that you get what you pay for. If you have a complex situation involving multiple bank accounts, multiple transfers between bank accounts, major gifts in the last five years, or any holdings beyond simple accounts, it’s much wiser to talk with a qualified professional who specializes in Medicaid planning.

Need help planning for your own family’s future? Give us a call at 630-783-1766 or drop us an email to get started.