April 1, 2014
The following are the first five of 10 common misconceptions relating to planning for the payment of long term care.
Misconception #1: Medicare or other health insurance will cover the cost of long term care, either at home or in a nursing home.
Traditional health insurance does not cover the cost of care in a skilled nursing facility.
The most that Medicare will pay for in a nursing home is 20 days in full and up to 80 days in part for a total of 100 days, and this is only if the nursing home stay was immediately preceded by at least a three day hospital stay and only as long as the care in the nursing home is considered skilled rather than custodial.
Misconception #2: Gifts that qualify for the annual exclusion, or gifts of tuition or medical expenses, are exempt from the Medicaid transfer penalty rules.
Any gift that is made, whether it be an annual exclusion gift ($14,000 per person per year in 2014) or otherwise, is part of the calculation of gifts for purposes of the transfer penalty and look back rules for Medicaid purposes.
Misconception #3. If I establish and fund a revocable trust, the assets in the revocable trust will be protected in the event of a catastrophic illness.
Many individuals believe, and are often incorrectly advised regarding revocable trusts. If a revocable trust is established and funded and the individual later needs long term nursing home or home care, individuals often believe that these assets are exempt and not available to pay for that individual’s care in the nursing home or at home.
This could not be further from the truth.
Because the individual retains control of the assets that are in a revocable trust, these assets continue to be available to the individual to pay for that individual’s cost of long term care, and are considered resources of that individual for purposes of Medicaid eligibility.
Misconception #4. If I purchase an annuity, the assets invested in the annuity are protected in the event of a catastrophic illness.
An annuity purchased on or after February 8, 2006 is considered an uncompensated transfer subject to the Medicaid transfer penalty rules unless it is irrevocable, non-assignable, equal payments are being made over the actuarial life expectancy of the annuitant, and the beneficiary on the annuity after certain exempt individuals must be the State to the extent that Medicaid has been provided to that individual.
Misconception #5. All retirement assets will have to be spent down before qualifying for Medicaid.
When an individual is over age 70 ½ and required to withdraw his or her retirement account over his or her life expectancy, in determining Medicaid eligibility, the value of the retirement account is not considered a resource for Medicaid eligibility purposes.
The income coming out to the individual is considered income for purposes of Medicaid eligibility.