When you’re thinking of retirement, you may have a vision of your life after work. Maybe you plan to travel, visit your grandkids, or pursue hobbies that you didn’t have time for when you were on the job. After working hard to put away enough money for a comfortable retirement, you want to ensure you can enjoy it.
But as you approach retirement age, it’s easy to feel anxious about the future and how an unexpected illness or need for long-term care could disrupt your plans with expensive financial costs. You know it’s possible to lose everything you’ve worked so hard for and that Medicare insurance won’t provide the financial support you’ll need. At some point, you may think about Institutional Medicaid to pay for the astronomical costs of a long-term care facility.
At Landskind & Ricaforte Law Group, P.C., we understand you want to enjoy your retirement now but still prepare for Medicaid eligibility later. Our Medicaid planning lawyers help New York retirees and pre-retirees with personalized strategies that help protect their assets while helping them qualify for Medicaid should they need it. Here, we discuss some strategies that allow you to make the most of your retirement years while simultaneously preparing for potential long-term care needs.
Qualifying for Medicaid While Enjoying Your Retirement
It’s important to remember that Medicaid is not Medicare. Medicare is a federal health insurance program for people over 65 and those with certain disabilities and illnesses. The program helps with the cost of health care, but it doesn’t cover all medical expenses or the cost of most long-term care.
Medicaid is a government medical assistance program for low-income Americans. This program pays for long-term care if a patient becomes ill, disabled, or incapacitated. New York Medicaid offers Institutional Medicaid, for those who need long-term care in a nursing home, and Community Medicaid for those who live in their own home, someone else’s home, or in an assisted living facility.
Qualifying for either program isn’t easy, and you must have limited income and assets. Any excess or surplus above the Medicaid limit must be “spent down” or reduced before Medicaid will provide financial support. Even if you’re not yet ready to retire, you don’t have to wait until you need long-term care to start your Medicaid planning.
Get an Early Start on Medicaid Planning
If you wait until you need long-term care, your options may be limited. The earlier you begin incorporating Medicaid considerations into your retirement planning, the more tools you'll have at your disposal. There are several strategies you can use to plan ahead but still enjoy your retirement. You may want to consider the following strategies:
Think About the Look-Back Period Now
Medicaid has a five-year look-back period for most asset transfers. This means when you apply for Medicaid, the government will review your financial transactions over the past five years. Any gifts or transfers made for less than fair market value during this time can trigger a penalty period that makes you ineligible for financial support. By starting your Medicaid planning five or more years before you think you’ll need long-term care, you can make strategic asset transfers without jeopardizing future Medicaid eligibility.
NY Medicaid’s Look-Back Period
When you submit an application for Institutional Medical benefits, you may consider spending down your assets by gifting money to a family member or transferring assets to them or someone else. But this is the wrong time to do it, and you’ll likely be penalized by Medicaid if you’re over Medicaid’s financial limit in money and assets when you apply. Medicaid has a five-year look-back period for those seeking long-term nursing home care. So, if in the last five years you spend money, give it away, give away assets, fund a trust, or invest in expensive items to appear that you have fewer resources than you really do just so you qualify for Medicaid, all of that money will be counted by Medicaid as assets, and you won’t be eligible.
Create a Medicaid Asset Protection Trust (MAPT)
When you need to apply for Medicaid, a Medicaid Asset Protection Trust (MAPT) can help protect your assets. A MAPT is an estate planning tool that helps you meet the agency’s strict eligibility requirements without exhausting your hard-earned savings to pay for long-term care. Because many people find it nearly impossible to meet Medicaid’s strict financial criteria, they can establish a MAPT and transfer assets into it, so Medicaid won’t count those assets when it determines their financial eligibility for benefits.
Establish an Annuity
An annuity is a contract between you and an insurance company. The most basic type of annuity is an income annuity, where you give the insurance company a lump sum of money, and they send you a certain amount of money every month for as long as you live. Many people establish a single-premium immediate annuity, where you receive a regular series of disbursements that begin right away.
An annuity is often used to provide income after retirement without incurring tax penalties. Some annuities can help you meet Medicaid’s strict asset limits without worrying about spending down your assets or violating the look-back period. For an annuity to be Medicaid eligible or “Medicaid-compliant,” it must fulfill the following requirements:
- It must be irrevocable
- It must be non-assignable, meaning that only you and your Medicaid beneficiary have a direct interest in it
- It must be actuarially sound, with the expectation that the premium will be returned within the annuitant’s lifetime
- It should name the New York State Medicaid program as the annuity’s beneficiary.
Don’t Make These Medicaid Planning Mistakes
Navigating the Medicaid planning process can be difficult, and you can make costly mistakes if you don’t work with an experienced Medicaid planning attorney. Here are a few common pitfalls to avoid:
- Protecting your assets by giving them away. You may think that you can give property, money, and other assets to your adult children as a way to protect them from Medicaid’s strict financial rules. But it’s important to remember that Medicaid will look at all your asset transfers within the five-year look-back period, and if you’ve made major gifts during that time, they can trigger harsh penalties. Before you gift assets to your family or anyone, consult with a Medicaid planning attorney to help ensure you're not sabotaging your future eligibility.
- Assuming you’ve run out of time. Even if you're already in a nursing home or receiving long-term care services, there still may be Medicaid planning strategies you can use. Don't assume it's too late to protect some of your assets. Our experienced Medicaid planning lawyers can evaluate your situation and recommend last-minute planning options.
- Failing to understand the tax implications. Medicaid planning strategies can have significant income, gift, and estate tax consequences. It's critical to work with an attorney who understands these tax implications and can structure your plan to minimize any adverse tax outcomes.