It is not unusual for nursing home costs to exceed $12,000 per month. For many individuals, a long term nursing home stay will be financially devastating. The illness of one spouse will substantially deplete the assets available for the healthy spouse.
What happens to the home? Will the family cottage be lost? Will the savings for retirement disappear for the costs of care?
There are planning options. One option is the Medicaid Protective Trust. This option requires advance planning to take into account the five year look-back period. Essentially, the five year look-back period means that if an individual gives away an asset within five years of applying for Medicaid, that individual will be ineligible for Medicaid for a period of time (the “Penalty Period”). Even if the individual otherwise financially qualifies for Medicaid, he/she will be ineligible during the Penalty Period.
The Medicaid Protective Trust can protect an asset. Assume an individual wants to protect a house or family cottage.
- A Medicaid Protective Trust is drafted for the client. This Trust is irrevocable.
- Client deeds the real estate to the Trust. This starts the five year look-back period. After five years pass, this real estate is protected from the costs of long term care.
- Client cannot be the Trustee. A child or other trusted person is the Trustee.
- Client gives up all rights to the real estate.
- Client enters into an Occupancy Agreement or Lease. This allows client to live on the premises. For rent, client pays the real estate taxes, insurance, utilities and costs of upkeep.
- Special tax provisions are drafted as part of the Trust to avoid income tax on the personal residence if the Trust sells the personal residence during the client’s lifetime. In addition, the beneficiaries of the Trust will receive a new cost basis on all Trust assets at the death of the client.
There is no one size fits all when it comes to Medicaid planning. However, the Medicaid Protective Trust offers an opportunity to protect assets for those who plan in advance of the crisis.
Attorney Terry L. Campbell