If you are investigating the idea of creating an estate plan, you have probably come across the phrase ‘Medicaid lookback’ as a reason to act sooner rather than later. But, if you don’t understand the ‘Medicaid lookback’, you may miss one of the most important reasons to create an Estate Plan while you are relatively young and in good health.
You should be planning today for how you will pay for long-term health care costs in the future for a number of reasons:
• If you are in your mid-60s, chances are you will live another 20 – 30 years! A man who is age 65 today can expect to live another 21.6 years to age 86.6; a woman can expect to live another 23.8 years to age 88.8. Are you prepared for the challenges of living to 90 or 100-years-old?
• Studies indicate that 52% of people who turn 65 today will develop a severe disability requiring long-term care; the same study found that the average stay is two years.
With that in mind, you can see why it is important to think about who will take care of you and where you want to live if you (or your spouse/partner) is among the 52%. But, you should also be asking yourself: How would I pay for skilled care? The median monthly fee for an assisted living facility in the Delaware is $6,015* (or $144,360 for two years); the median monthly cost for a semi-private nursing home room is $10,646* (or $255,504 for two years).
Your options are to do nothing and hope for the best, purchase long-term care insurance if you can afford it, or come up with a plan to protect your assets and qualify for Medicaid sometime in the future. Why Medicaid? Because Medicaid is the only government program that pays for long-term care … which brings us back to the ‘Medicaid lookback period.’
UNDERSTANDING THE ‘LOOKBACK PERIOD’
Medicaid is a federal program which is run by each state, so there are federal and state rules to follow. It was designed for individuals with very few assets (money, homes, cars, artwork, jewelry, etc.). If you suddenly what to qualify due to an event like a stroke, you cannot simply give (transfer) all your assets to your children and then say to Medicaid, “I’m poor, please pay these bills.” Instead Medicaid looks at all of your income and expenses for the past five years – the ‘Medicaid lookback period’ – as they consider whether you are qualified for benefits. You essentially must prove that you were not transferring your money or ‘things’ to others simply to qualify for Medicaid.
If the state Medicaid agency decides you made a transfer for less than fair market value, Medicaid will delay paying for your long-term care for a period of time. This is called the ‘penalty period’. The reason for this penalty period is that your assets could have been used to help cover the cost of your long-term care if they had not been gifted or transferred. The length of the penalty period is determined by dividing the amount you transferred by the average private pay cost of a nursing home in your state.
Here’s a quick example. If the average monthly cost for nursing home care is $10,000 and you gifted $60,000 during the five-year lookback period, you will have to pay for your care for six months before Medicaid steps in. ($60,000 gifted divided by $10,000 average monthly cost = six months)
There are strategies to avoid penalties and there are actions which may seem logical which won’t help at all. Because it’s complicated, it’s important to work with an experienced attorney who can create a plan to protect your assets AND position you to be eligible for Medicaid if and when you need it. Ideally you will begin the process five years ahead of the time when you need Medicaid – a time you cannot predict which is why it is important to plan today for tomorrow.
An experienced attorney can also help you qualify for Medicaid if a sudden illness or accident requires you to stay in a long-term care facility and you have not created an Estate Plan in advance. This is considered a ‘crisis plan.’
Our experienced team here at Estate & Elder Law Services can help you with both types of plans.
*Genworth 2017 Cost of Care Survey, Delaware