If you fear that your Georgia parents are approaching the age when they may need the services of an assisted living or nursing home facility, you should help them begin planning for this possibility as early as possible. In all likelihood, your parents are not sufficiently wealthy to afford long-term care, and Medicare will not pay many of these costs. Consequently, your parents may need to apply for Medicaid as their only option.
However, neither you nor your parents can afford to wait until the time when they actually need the Medicaid benefits for which they will be applying. Why? Because Medicaid has a catch. To qualify for Medicaid benefits, a person must be “indigent,” that is, own less than $2,000 in assets or less than $4,000 if a married couple applies jointly for Medicaid.
Although your parents may not be well-to-do, they undoubtedly have more than $4,000 worth of assets between them, thus making them ineligible for Medicaid. So what options do they have? The answer may be a Medicaid spend-down.
As the term implies, a Medicaid spend-down is a deliberate, albeit perfectly legal, way to “impoverish” your parents. But there is another catch. You and they must do this at least five years before they apply for Medicaid. Why? Because the Deficit Reduction Act of 2005 grants Medicaid the right to “look back” at your parents’ financial records for the preceding five years to see if any gifts, sales or transfers they made are suspicious enough to make them ineligible for Medicaid.
One of the safest and surest ways in which your parents can accomplish their Medicaid spend-down is to set up an irrevocable trust into which they place all of their assets. Once they do so, they no longer own their assets; the trust does. Since the trust is irrevocable, they cannot change or alter any of its provisions. They are therefore indigent.
They can, however, continue to benefit from the assets their trust contains. Their trustee makes those distributions in accordance with the trust provisions. Naturally your parents must appoint a trustee in whom they have complete faith and trust because their entire financial futures are in that person’s hands. Most people designate one of their adult children as their trustee.
Advice and counsel
Commencing a Medicaid spend-down and setting up the appropriate irrevocable trust or other estate planning tool to accomplish it can be quite complicated since there are numerous state and federal laws to consider. In addition, not only must everything be accomplished at least five years before your parents apply for Medicaid, but the trust itself must be properly worded so as to continue to give your parents the benefit of their assets that they now no longer own.
This is not an undertaking that you and your parents should attempt on your own. It is in their and your best interests to seek the advice and counsel of an experienced estate planner.