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A trust can protect your legacy if you need Medicaid

On Behalf of | May 7, 2024 | Estate Planning |

We’d all like to stay healthy and independent throughout a long life, but the reality is that if we’re lucky enough to survive into old age, we will likely need help. It’s widely reported that, among Americans who are currently age 65 or older, about 70% will require long-term care at some point in the remainder of their lives.

How long is this long-term care? The average time Americans spend in long-term care is more than three years.

Paying for long-term care

The term “long-term care” mean a variety of services, including home health care, assisted living facilities, nursing homes and more. The cost of these services depends on the level of their service and commitment, but none of them are cheap. Paying for long-term care can quickly wipe out a person’s life savings, leaving them with little to pass on to their loved ones.

To help pay for long-term care, many Americans rely on the federal Medicaid program, which is known as Washington Apple Health here in Washington state. However, Medicaid is primarily intended to provide medical care to indigent people. With that goal in mind, the program uses a means test to determine eligibility: Those who have more than a specified amount in assets are ineligible for Medicaid.

Estate planning and Medicaid eligibility

To become eligible for Medicaid, many Americans must get rid of some of their assets, but they must do so carefully. They want to make sure they have enough to live on, without putting them over the threshold that makes them ineligible for Medicaid.

One way to manage this is through creating a trust. If a person places assets in a trust, the trust becomes the owner of the assets. The trustee manages these assets and distributes them to the designated beneficiaries.

For example, imagine John’s ownership of a home makes him ineligible for Medicaid. John then places his home in a trust and names himself as beneficiary, which his daughter as successor beneficiary. Because he no longer technically owns the home, he can be eligible for Medicaid. The trustee manages the home so that John can continue to live in it and receive in-home nursing care. After John dies, his daughter becomes the new beneficiary and can take possession of the home.

This kind of solution takes careful planning. Experienced estate planning professionals can help families understand their Medicaid planning options.