If you are a mature Texas resident, or if your parents are getting on in years, you may be concerned about what will happen if you or they eventually need nursing home or other long-term care. Even if you and/or your parents are relatively well-to-do financially, few people can afford the extraordinary costs of long-term care and must rely on Medicaid to pay these costs. Unfortunately, you must meet strict financial requirements to obtain Medicaid benefits. However, contrary to popular belief, you need not go broke in order to qualify.
Virtually all state Medicaid programs require that a person must be “indigent” in order to qualify. This means that if single, a person must have no more than $2,000 worth of assets; married couples must have no more than $4,000 in combined assets. Few people have only this virtually negligible amount of assets, so it becomes necessary for them to reduce their assets to this amount. One of the ways you may be able to do this is through a Medicaid spend-down, a perfectly legal, albeit deliberate, way to “impoverish” yourself or your parents.
If you decide to do a Medicaid spend-down for yourself or for your parents, you need to begin as soon as possible. Why? Because Medicaid officials have the right to review a Medicaid applicant’s financial records for the five years preceding his or her application for benefits. The 2005 Deficit Reduction Act grants them this right. What this means is that if they find any gifts, sales or transfers during this five-year period that look like deliberate impoverishment techniques, this will disqualify you or your parents from receiving Medicaid benefits.
Obviously, the way around the look-back period problem is to do your spend-down well before you or your parents actually need Medicaid benefits. One of the safest and surest ways to accomplish your goals is via an irrevocable trust. Depending upon for whom you are conducting the spend-down, once you or they place all assets in an irrevocable trust, the trust owns the assets, the grantor does not, and (s)he therefore is indigent for Medicaid purposes.
This does not mean, however, that benefit cannot be derived from the trust assets. The trustee (who manages the trust assets) disperses them and/or their income to the designated beneficiary or beneficiaries. Since the trust is irrevocable, this means that the grantor cannot change it in the future so as to regain ownership and control over its assets. Most people appoint one of their adult children as trustee, but others choose their lawyer, investment broker, bank or other organization as their trustee.
Seeking professional advice and counsel
Commencing a Medicaid spend-down is a complicated undertaking. You must take many state and federal laws into consideration. You also must make sure that your irrevocable trust and other estate planning documents are properly drafted and contain just the right wording. Finally, you must accomplish all this at least five years before you or your parents actually need to apply for Medicaid. Given all of the above, your best strategy is to consult a knowledgeable and experienced estate planner well-versed in Medicaid rules and requirements. Only (s)he can give you the advice and counsel you need to do a successful Medicaid spend-down.