Many retirees use Medicaid, a joint federal and state health care program, to cover medical and long-term care costs. Here are some strategies to consider before you apply.
The coronavirus (COVID-19) pandemic has caused federal spending on Medicaid to rise sharply as millions of Americans have sought benefits under the program. Since April 2020, when the unemployment rate rose to a historic high, the government has spent an average of $42 billion per month—which significantly exceeds the average monthly outlays of $35 billion recorded in 2019. The rise in spending can be attributed to factors that stem from the COVID-19 pandemic: growth in the number of Americans eligible for Medicaid as a result of job loss.1
The need to turn to Medicaid to help manage long-term health expenses can conflict with the desire to preserve assets and potentially leave a legacy for loved ones.
Explore Some Strategies Before You File
Consider whether one or more of these strategies fit your situation and needs—and be sensitive to the five-year look-back period most states have (2.5 years in California) whenever you gift or transfer assets2:
1. Use assets to pay off debt and expenses.
Use at-risk assets to pay off bills prior to applying for Medicaid assistance.
2. Buy assets not counted by Medicaid.
Certain assets are excluded from assets Medicaid considers for benefits qualification: home, car, personal effects. For example, you could buy a more expensive home or improve an existing one or buy a new car.
3. Convert assets to income.
Depending on your individual circumstances and preferences, you may consider the use of an annuity in order to convert assets to income. It’s important to note that most annuities are not appropriate for Medicaid planning, however some conform to Medicaid law requirements, such as a non-assignable, non-transferable option.
4. Gift to loved ones.
Give money or assets during your lifetime to those you love. The IRS allows you to give up to $16,000 to a person; any amount over that counts as ordinary income for the recipient. If you’re married, your spouse can also gift up to the same amount to the same recipient(s). (Check out the IRS’s frequently asked questions on gift taxes for more information.)
5. Consider using an irrevocable trust.
This type of trust is exempt from nursing-home costs, unlike a revocable/living trust. While you can’t receive principal, any interest or dividends are safe from seizure (“Medicaid trust”). One such trust is a Spousal Limited (Lifetime) Access Trust (SLAT).
6. Set up a life estate for your real estate.
With this technique, you establish ownership of land (or a home) for the duration of a person’s lifetime. The property can revert to an original owner or pass to an heir, as designated.
7. Have a spouse refuse to care for the one needing health care.
Some states permit something called spousal refusal, or more commonly spousal ref. The well/ community spouse denies support for the spouse needing care. As a result, the spouse who needs care becomes immediately eligible for Medicaid and medical services.
Helping Your Heirs As Well As Yourself
By using one or more of the outlined strategies, you can make long-term care spending decisions easier for your children or heirs, as well as yourself.
Taking these steps allows your loved ones to focus on your health and well-being without any concern about any potential inheritance or other conflict of interest.
Working With Janney
Depending on your financial needs and personal preferences, you may opt to engage in a brokerage relationship, an advisory relationship or a combination of both. Each time you open an account, we will make recommendations on which type of relationship is in your best interest based on the information you provide when you complete or update your client profile.
When you engage in an advisory relationship, you will pay an asset-based fee which encompasses, among other things, a defined investment strategy, ongoing monitoring, and performance reporting. Your Financial Advisor will serve in a fiduciary capacity
for your advisory accounts. For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.
By establishing a relationship with us, we can build a tailored financial plan and make recommendations about solutions that are aligned with your best interest and unique needs, goals, and preferences. Contact us today to discuss how we can put a plan in place designed to help you reach your financial goals.
This is for informative purposes only and in no event should be construed as a representation by us or as an offer to sell, or solicitation of an offer to buy any securities. The factual information given herein is taken from sources that we believe to be reliable, but is not guaranteed by us as to accuracy or completeness. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. Employees of Janney Montgomery Scott LLC or its affiliates may, at times, release written or oral commentary, technical analysis, or trading strategies that differ from the opinions expressed within.
Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.
The examples provided are all hypothetical and do not take into account any specific situations. The hypothetical examples are provided to help illustrate the concepts discussed throughout and do not consider the effect of fees, expenses, or other costs that will effect investing outcomes. Any actual performance results will differ from the hypothetical situations illustrated here. Please consult a professional to help you evaluate your situation before implementing any of the strategies discussed here.
2. Source: American Council on Aging: Understanding Medicaid’s Look-Back Period: Penalties, Exceptions & State Variances, January 21, 2019 https://www.medicaidplanningassistance.org/medicaid-look-back-period/