This post For Anyone Who Might End Up Needing Medicaid… appeared first on Daily Reckoning.
Do you have a loved one who is disabled or has chronic health issues that may require long-term care in the future?
Perhaps you’re confident that you can take care of the person yourself.
Perhaps you figure there are government programs, like Medicaid, that could be there to pay for long-term care and medical expenses.
At the very least, you probably expect the person to make use of any money you leave behind.
Well, before you make those assumptions, there’s something you should understand…
You see, if someone applies for government help, such as Medicaid, the state determines how much they can keep. And in most states, they cannot own more than $2,000 worth of assets.
Assets that are usually counted for eligibility include:
- Checking and savings accounts
- Stocks and bonds
- CDs
- Real property
- Additional motor vehicles if they have more than one
Assets that do not get counted for eligibility include:
- Personal property and household belongings
- One motor vehicle of any value
- Life insurance with a face value under $1,500
- Up to $1,500 in funds set aside for burial
- Certain burial arrangements such as pre-need burial agreements
Now, a personal residence is treated specially…
It isn’t counted as long as the equity doesn’t exceed $572,000, with the states having the option of raising this limit to $858,000. (The equity is the fair market value less outstanding debt on the home). These limits are inflation-adjusted each year.
Plus, in some states, the home will not be considered a countable asset for Medicaid eligibility purposes as long as the nursing home resident intends to return home.
In other states, the nursing home resident must prove a likelihood of returning home.
Meanwhile, if a person gets an inheritance, their government benefits stop until they have spent all but $2,000 of it. Then it takes months to resume the government assistance again.
That means your loved one would have to spend down all the money you left before they could qualify for Medicaid.
For example, if you leave your spouse a $100,000 brokerage account, they’d have to spend $98,000 of it before qualifying for Supplemental Security Income (SSI) from Social Security or Medicaid.
One solution to all of this?
Leave your assets to another family member with the understanding that they’ll use the money for your intended beneficiary.
But then there’s the risk that the money might not be used as planned or even lost due to divorce, bankruptcy, or mismanagement.
A better option could be a special needs trust (SNT).
Also known as a supplemental needs trust, an SNT allows a beneficiary to keep government health and disability payments while benefiting from trust assets.
These funds can be used for such things as out-of-pocket medical expenses, dental care, nursing care, travel and vacation, vehicle maintenance, and a live-in caregiver. Disbursements are not given directly to the beneficiary. Instead, they go to a third party (a trustee) who pays for the goods and services.
You can be a trustee. But you must select a successor trustee to oversee everything when you’re gone. It can be a close friend, a corporate trustee, or a combination of the two as co-trustees.
Honesty and reliability are critical. That’s because there is little court supervision on how trusts are managed. For the most part, they operate on the honor system.
Trustees should be familiar, or willing to become familiar, with the rules that determine eligibility for SSI and Medicaid.
They must also understand how the SNT can be used to supplement the beneficiary’s needs without violating those rules.
Even if you aren’t currently concerned about your loved one receiving government benefits, you never know what the future holds.
For example, if the beneficiary is ever sued, the funds in the SNT cannot be touched since they are not subject to judgments.
And to establish a good relationship between the trustee and the beneficiary, you might consider including a letter to the trustee describing the beneficiary’s needs.
You can fund the SNT immediately, or name it as the beneficiary of life insurance, IRAs, or other payable on death (POD) accounts.
Lastly, name a beneficiary to receive what remains in the SNT after your loved one dies. Otherwise, the trust assets will end up in probate court where a judge determines who is next in line.
You can draft an SNT on your own, as long as you include the proper language. There are tons of books and online sources with templates.
Just remember that state laws vary, and your circumstances may be more complicated than you realize. So to make sure it’s done right, also consider consulting an estate planning attorney who has experience with SNTs.
To a richer life,
Nilus Mattive
Editor, The Rich Life Roadmap
The post For Anyone Who Might End Up Needing Medicaid… appeared first on Daily Reckoning.
From:: Daily Reckoning