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You can keep certain assets while still being eligible for Medicaid. here’s how

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The long-term care bill is piling up quickly. The median annual cost of a private room in a nursing home was $ 105,850 in 2020, according to Genworth. The government could cover these costs if you qualify for Medicaid, but that’s easier said than done. “Medicaid is a social assistance program,” says Neel Shah, estate planning lawyer and certified financial planner with Shah & Associates in Monroe Township, NJ. “There are strict income and wealth limits to qualify.

Medicaid is not to be confused with Medicare, the national health insurance program for people aged 65 and over that largely does not cover long-term care.

If you can pay for your own care, you will have more options because not all facilities accept Medicaid. Yet even couples with large savings risk impoverishing the other spouse to pay for a long stay in a retirement home. If that’s what you fear, you may be surprised to learn that you can preserve certain assets for a spouse and benefit from Medicaid by using tools designed for this purpose.

Although qualifications vary from state to state, your income should generally be less than $ 2,382 per month. You can allocate up to $ 3,259.50 of your monthly income to a spouse, whose income is not considered, while staying within the Medicaid limit. Your assets must be $ 2,000 or less, with a spouse allowed to keep up to $ 130,380. Cash, bank accounts, real estate other than a primary residence, and investments, including those in an IRA or 401 (k), all count as assets. But you can keep a personal residence, non-luxury personal effects like clothing and appliances, a vehicle, wedding rings and rings, and a prepaid burial ground.

Redistributing your assets can help you meet Medicaid standards. “Rather than keeping $ 100,000 in the bank, use that money to pay off your mortgage or pay for home renovations,” Shah explains. Alternatively, you can prepay for a burial ground, replace a vehicle, or upgrade household appliances. Your spouse will keep these purchases if you need long-term care, and with fewer assets to spend, you’ll qualify for Medicaid sooner.

However, what your spouse has left is unlikely to be enough to live on. You could increase a spouse’s income with a Medicaid-compliant annuity. These contracts turn your savings into a future retirement income stream for you and your spouse and do not count as an asset. You can purchase the annuity at any time, but to be Medicaid compliant, annuity payments must begin immediately with the state designated as beneficiary after you and your spouse die.

You can also set up a Miller Trust for yourself, suggests Steve Parrish, co-director of the Center for Retirement Income at the American College of Financial Services at King of Prussia, Penn. This irrevocable trust is used exclusively to meet the Medicaid income threshold. If your income from Social Security, pensions, and other sources is more than the Medicaid limit but not enough to pay for nursing home care, the excess income can go into a Miller Trust. This allows you to benefit from Medicaid while keeping some money in trust for your own care. The funds can be used to take you out to dinner, buy you nicer clothes, or pay for dental care, which Medicare doesn’t cover, Parrish says.

These strategies protect the assets or income of couples. Leaving something to other heirs is more difficult. After you and your spouse die, state governments are required to recover Medicaid costs from your estate to the extent possible, through a lien on your home, a reimbursement from a Miller Trust, or seizure of assets during probate before they are distributed to heirs.

A potential workaround comes with risk. Any assets transferred within five years of the Medicaid application date still count for eligibility, but assets transferred to heirs earlier do not. “You could set up an irrevocable trust on behalf of your children and transfer property that way,” Shah explains. “It’s like putting the property in a safe and giving them the key.”

Because you are losing control of the trust assets, your heirs should be ready to help you financially if you need it. It’s too much uncertainty for Parrish. If someone has that much money, he says, maybe they should just use it to pay for better care.

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