We are often asked the question… do we have too many assets to consider Medicaid Planning as part of our planning? This question can be asked in a few other ways, but essentially these clients are wondering if Medicaid Planning is for everybody. As a quick answer — no. Medicaid Planning is not for everybody, but like many topics in estate planning, this answer is not simple when you fully understand the question.
Before we even think about asset levels in relation to Medicaid Planning, the family must consider their care requirements and the available facilities in their community.
Private Pay vs. Medicaid: What are the trade-offs?
First, and this is critically important, a family has to evaluate whether they really want to preserve or protect assets for their heirs and accept the reality of long-term care under Medicaid. Medicaid facilities provide sufficient care for many of our seniors, but non-Medicaid facilities usually provide a few additional benefits to their residents who can afford to privately pay. The quality of life for the senior resident can vary between a Medicaid alternative and a private pay alternative.
Family assets are typically earned over a long, steady career, and there is nothing wrong with spending those assets on a care plan at a non-Medicaid facility, or enjoying a private room versus a typical shared room requirement in a Medicaid facility. So understanding the realities of what level of care is provided under Medicaid in your community is a very important first step for a family to consider.
How Many “Medicaid Beds” Are Available In Your Area?
The next important issue to consider is how available is a Medicaid facility, and a corresponding “Medicaid bed” in this facility, within your community? Most Medicaid facilities have a percentage of their rooms allocated for Medicaid residents, and the remainder of their rooms planned for private pay residents. The facility earns higher revenue from a private pay resident, so they have a business incentive to maximize the number of private pay residents. Can a family even find a Medicaid bed available in their community? Or will the facility require a period of private pay (for example 12 months) before they will offer a Medicaid bed? Many facilities do this as part of their offering. For instance, there is not an abundance of Medicaid beds available in Johnson County, KS, where our office is located. This availability factor can vary significantly across communities, and should not be overlooked in the planning process.
Each Family Has to Make Their Own Choice
There is nothing worse than hearing a family’s story of how they protected a parent’s assets with proactive Medicaid planning, and then also hear their story about how they regret putting their parent into the Medicaid care environment for their final years. The guilt factor of this decision can lead to enduring pain for a family. All families have to determine their acceptable quality of care from actually visiting facilities, and then they have to cross reference this care level with the available facilities in their community, before we need to spend too much energy on asset planning.
Two Types of Medicaid Planning
After a family has evaluated their actual alternatives in their community, then we can better address the ultimate question of do we have too many assets for Medicaid Planning? Typically, Medicaid Planning is broken into two types of planning:
- Proactive Medicaid Planning — using asset protection techniques to restructure and protect assets with an expectation of filing for Medicaid some time after the current 5-year look back period for gifts has expired.
- Crisis Medicaid Planning — using asset protection techniques to protect as many assets as possible with a plan to immediately file for Medicaid, or to file for Medicaid shortly after taking these steps to protect the family assets.
Proactive Medicaid Planning
In the case of Proactive Medicaid Planning, there really isn’t an asset level threshold. The family is proactively transferring assets to a Trust or other entity, so they can decide how many assets they are comfortable gifting away to the protective environment. There is no question that higher wealth clients rarely gift away all their hard-earned assets just so they can line up for Medicaid care in the future, but this becomes a planning decision for each individual client’s long-term care plan. This planning usually focuses on how much control the client is willing to give up with their assets, and the availability of alternate ways to pay for their care during the 5-year look back window for gifts with Medicaid. Read more about Proactive Medicaid Planning in this blog post.
Crisis Medicaid Planning
On the other hand, Crisis Medicaid Planning can have realistic limits for assets that can reduce the effectiveness of various techniques. Nevertheless, many families who think they cannot qualify for Medicaid often do not even try to protect assets when they should consider the alternatives. Many families would be able to qualify for Medicaid in a shorter period of time AND protect a higher percentage of their assets if they did Crisis Medicaid Planning. Married couples often have more alternatives to protect assets than single clients, but clients are usually surprised at the percentage of their assets that can be protected as they eventually qualify for Medicaid. One thing is for sure, the Medicaid Department of your respective state will not inform you of ways to protect your assets. A client needs to engage with an elder law attorney who practices in this area, and the client needs to understand there will be limits on how much can be protected under the law.
Long-Term Care Planning Needs to Be a Part of Your Estate Plan
We encourage all clients to remember to include their long-term care planning as part of their overall planning process. For many this does not become a critical component until after retirement or later in their lifetime, but as clients age the long-term care planning component becomes increasingly important to consider.
If you are concerned about the future of long-term care costs for yourself or a loved one, we encourage you to learn more by exploring this topic on our blog, or by reading the following articles: Why You Need More Than a Will and How Will I Pay for Long-Term Care? We are also more than happy to answer any questions you may have. Just give us a call at 913-345-2323 to set up an exploratory consultation.
If you are an advisor with clients who could benefit from considering long-term care planning, as you look at long-term care insurance options with your client, we encourage you to also talk with us about the client’s options after the long-term care insurance is used. Again, we are available at 913-345-2323 to discuss further.