Access to affordable healthcare is a hot topic across the nation these days. If you are fortunate enough to have good employer sponsored health insurance right now, don’t make the mistake of becoming complacent. Once you reach your retirement years, everything changes with regard to healthcare. Like most seniors you may be looking forward to relying on Medicare to cover most healthcare needs; however, Medicare doesn’t cover everything. Specifically, Medicare won’t cover long-term care expenses. Consequently, you may need to qualify for Medicaid. Living trusts can help you do that. Specifically, creating a Medicaid trust now, as part of an overall Medicaid planning component within your estate plan, can help ensure continued access to crucial medical care in the future.
Long-Term Care and the Need to Qualify for Medicaid
Although you may prefer not to dwell on it, there is a strong possibility that you, or a spouse, will need long-term care (LTC) at some point during your retirement years. Of course there is no way to know with any certainty who will, and who won’t, end up in a LTC facility; however, statistics tell us that the odds increase with each passing year. When you reach retirement age, around age 65, you will already stand a 50 percent chance of eventually needing LTC at some point before the end of your life. Every year that passes, those odds go up. If you are fortunate enough to still be here at age 85, your odds of needing LTC will have increased to a 75 percent chance. Don’t forget, if you are married, your spouse shares the same odds of eventually need LTC.
The important issue with the need for LTC from an estate planning perspective is the cost of that care. Nationwide, the average cost of LTC in 2017 was about $6,500 per month. The State of Illinois is in line with the national average at $6,500 per month. With an average length of stay of 2.5 years, that puts an average LTC bill at about $200,000 right now. If you are in your 40s right now, however, it could be another 30 years before you need LTC. At an estimated cost of over $15,000 per month in 30 years, you would be looking at a LTC bill of well over $400,000 when you actually need LTC. How will you pay for that care?
Most retirees quickly learn to depend on Medicare to cover most of their healthcare expenses given the fact that almost all seniors qualify for Medicare automatically upon reaching retirement age. Unfortunately, however, Medicare will not cover LTC expenses. Neither will most basic health insurance policies. Unless you can afford to pay out of pocket, or you purchased a separate LTC insurance policy, Medicaid is likely your only hope for help covering your LTC bill. Because it is intended to help low income recipients, however, Medicaid uses both an income and an asset threshold that you cannot exceed if you wish to qualify. The asset limit is typically very low — $2,000 for an individual in most states. While some primary assets, such as your home or a single vehicle, are exempt, most seniors who have been saving for decades have assets that exceed the limit. Furthermore, the Medicaid rules prohibit the transfer of assets within the five-year period just prior to applying for benefits. This five-year “look-back” rule is one of the primary reasons why most people need to include Medicaid planning in their estate plan long before the need to qualify for Medicaid actually arises.
How Can a Medicaid Trust Help?
If you have non-exempt assets that exceed the limit – and you probably do – one of the most common ways to protect those assets and still qualify for Medicaid is to create an irrevocable Medicaid trust. Once those assets are transferred into the trust they are no longer considered for the purpose of determining eligibility for Medicaid. Although you will no longer have access to the principal of the trust, you may benefit from interest earned by the trust. The assets owned by the trust will eventually be distributed to the named beneficiaries, such as your children.
Contact an Illinois Living Trusts Attorney
Please feel free to download our FREE estate planning worksheet. If you have questions or concerns regarding Medicaid trusts, contact an experienced Illinois living trusts attorney at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.