Asset Protection Planning typically involves the transfer of assets out of your name in an effort to shelter them from the cost of nursing home care. Usually, the planning calls for the creation of an Asset Protection Trust to own assets such as a house or investments. The goal is to protect those assets from the eligibility process for the Medicaid Program that pays for nursing home costs. How do you know if asset protection planning will benefit you?
Medicaid (also known as Medical Assistance) is a Federal and state program that pays for the cost of your care if you enter a nursing home. It also has home-based benefits that pay for caregivers through the Community Health Choices Waiver Program. However, not everybody is eligible for the Medicaid program. You must require the type of care that is provided in a nursing home, in addition to financially qualifying for the Medicaid program.
Medicaid has resource limitations. The available resources are typically cash assets that can be used to pay for your care. There are also unavailable resources such as your home, one car, your irrevocable burial accounts, and personal property. If you are single, the available resources are limited to a range between $2400 and $8000. If you are married, the available resources you can keep are typically equal to half the total available resources a couple has in their names (up to a maximum resource allowance that changes each year). In 2023, that maximum is just over $148,000. If a couple has savings over their resource allowance, they will have to spend down their savings until they reach that resource limitation. For those that are just slightly over the resource allowance they may be able to spend down on burial accounts, a new car, or other basic expenditures.
The Medicaid program has a look-back period of five years to determine if transfers (often referred to as gifts) have been made that could render you ineligible for Medicaid. If a gift has been made within five years prior to application, a notice will be issued by the Department of Human Resources that says you are not eligible for Medicaid for a calculated period of time. For example, if you had a house worth $100,000 that you gave away within the five years prior to applying for Medicaid, a formula would determine an ineligibility period of approximately eight months using 2023 figures.
Asset protection planning involves looking at your resources, such as your home, other real estate holdings, and your savings, to determine if you would benefit from transferring some of them out of your name. The goal would be for transfers to be made five years before an application for Medicaid would be needed. For those who are wealthy, there may be less interest in transferring assets since they have enough money to self-insure. However, even some wealthy clients want to protect their home, particularly if it is a multi-generational property such as a family farm.
Asset Protection Trusts are irrevocable grantor trusts that allow you to transfer a home or other assets to the trust in an effort to avoid inclusion in an application for Medicaid. These Trusts allow you to reside in your home for the rest of your lifetime. Your children will not own the home until your passing. Therefore, the home is protected from your children’s lives and any falling out you may have with one or more of them. The home can also be sold, and the proceeds are protected in the Trust.
If you have some savings that you want to protect in the Trust, they can be transferred as well. In addition to real estate, stocks, mutual funds, savings bonds, whole life insurance policies, cash and non-qualified annuities can all be transferred to an Asset Protection Trust. One of the significant assets that cannot be transferred to the Trust is a retirement account such as an IRA or 401k. These accounts hold untaxed income and any attempt to move them to a trust would result in taxation of the account all at once.
Whether or not asset protection planning will benefit you depends on the amount of your savings and your estate planning goals. Do you have savings, but not enough to self-insure? Are your savings invested in such a way that transfers could be made to a trust without causing tax problems, such as what you would face with an IRA? Lastly, do you want to protect an important asset such as a home or farm regardless of your estate size? Each case is different, and it is recommended that you meet with an experienced elder law attorney to determine if asset protection planning will benefit you.