Long Term Care

One of the most common concerns for older people is how to pay for long term care, particularly nursing home care.  Medicare, the federal insurance program that is available at age 65, does not cover nursing home costs, except for a limited period usually involving rehabilitation.

Medicaid is a federal program administered by the states that is based on need.  Medicaid will pay for long term nursing home costs if you qualify.  Qualification is based on what you own (a resources test) and what you earn (an income test).

The resources test can be complicated. When applying for Medicaid you will be required to complete a detailed application regarding your assets and your income.  A single person is allowed to own certain assets and still qualify for Medicaid, including: (1) $2,000 in cash or other nonexempt property; (2) equity in a home up to $688,000 (Although your home is exempt while you are alive and while your spouse is alive, it is not exempt after your death.  While you are alive, the State of Illinois may place a lien on the home that must be satisfied after your death.); (3) one motor vehicle if necessary for work, transportation medical needs or otherwise; (4) life insurance or a revocable burial fund of up to $1,500; and (5) an irrevocable prepaid funeral plan.

Assets that are counted in determining eligibility include retirement plans, assets held in revocable trusts such as living trusts, and assets held in irrevocable trusts, depending upon the terms of the trust agreement.

Your spouse's resources are also counted in determining Medicaid eligibility. However, the spouse who is not in a nursing home (referred to as the "community spouse") is allowed to keep up to $120,780 in nonexempt property and up to $3,715.50 in monthly income.

If you do not meet the resources test, you must use your own assets to pay for your nursing home costs until you do meet the resources test. This is called a "spend down."

There are various strategies to help someone qualify for Medicaid.  It is acceptable for the spouse who needs nursing home care to transfer assets to his spouse before applying for Medicaid.  For example, if a husband and wife's only assets are a home and cash of $100,000, and the husband needs nursing home care, they can put all of the cash in an account in the wife's name.  The husband will now qualify for Medicaid because he has nonexempt assets worth less than $2,000, and his wife has assets worth less than $120,780.

This strategy can be used with retirement accounts, but it will cause income tax to be payable on the account.  For example, assume husband and wife's only assets are a home and an IRA in husband's name worth $150,000.  If husband wants to transfer his IRA to his wife, he will have to withdraw the $150,000 and pay income tax on the entire distribution.  He can then transfer the net amount to wife.

Another strategy is to transfer assets to your children or other family members.  Because Medicaid is only intended for those who cannot pay for themselves, there is "look back" period of 60 months if you give your assets to others.  The Medicaid application asks if you have made any transfers. You must sign the application under penalties of perjury, and making false statements on the application is fraud.  In addition, the application requires you to submit supporting documentation of your assets, both currently and in prior years.

Once you qualify and Medicaid is paying your nursing home costs, you are entitled to a monthly personal needs allowance of $30 per month, which, of course, will not pay for a cell phone, hair cuts, clothes, etc.  If you are younger than 65, It is possible to set aside some of your assets in a "self-settled special needs trust" and use those assets to pay for things like a phone, travel, clothes, etc.  However, any assets remaining in such a trust must be paid to the State at your death.

Many people do not consider long term care until they need it.  At that time there are not many options.  If you are concerned about long term care, now is the time to plan for it.  You may not qualify for Medicaid or you may simply feel more secure relying on your own long term care plan. Your plan may include long term care insurance, annuities, old fashioned savings or other options.  If you need care, you should also talk to a professional.  Medicaid qualification is a complicated area, and there may be options available that you do not know.  Either way, talk to your advisors to determine what is the best plan for you.

This article is for informational and educational purposes only and does not constitute legal advice.