Living Trust for Medicaid?

[CaliKid]

I recall in the mid 1990's there were a few years where there were potential criminal penalties for certain types of Medi-Caid planning. I believe it was federal law. So tell me again how Medi-Caid planning is the same as income timing and other things people have mentioned?

 

[ChrisC]

We don’t have anything explicitly set aside, but our retirement assets should be able to cover a long nursing home stay - at least as long as LTC will cover - and still have enough for the surviving spouse. Knock on wood!

But I agree that unless you have say an “extra” $2M - the max many LTC insurance available today will pay out, it’s tough to self-insure.

Well I guess many LTC policies payout a lot less than that. Is $400K max payout or less more typical?

If that’s the max an LTC policy will pay out anyway and you already have that amount in “extra” savings than you have the equivalent of a policy. Note that for folks with very long stays in a memory unit or expensive place will use up their policy anyway. And only one of you needs to be covered because the other will spend down the remaining assets if needed.

This doesn’t protect heirs. Some people buy LTC Insurance to protect their heirs.

My wife and I have Federal LTCi, purchased when I was an employed Federal employee. Our maximum benefit for each of us is $516K over 5 years, with an annual inflation adjustment. With two premium adjustments over the last 14 years, we now pay $4200 for both of us, which is reimbursed from our HSAs. Our retirement assets and pensions would cover a lot of years in LTC, aside from our LTC insurance. We bought the insurance with the idea that it would be easier on our family to handle the transition -- emotionally and financially -- if we went into LTC.

On the other hand, my wife and I manage my BIL's healthcare and finances. BIL has MS and currently resides in an assisted living facility. He has a very good Federal pension, SS Disability income and no retirement assets but he's backstopped with a modest special needs trust my MIL set up before she passed. We can manage his assisted living expenses with his income streams, but if he goes into a skilled nursing facility, which appears likely because MS never gets better and his cognitive skills and mobility are rapidly deteriorating, all of his income streams would be exhausted in 3-5 years because of the cost of skilled nursing care, in which case he would then be reliant on Medicaid.

 

[Huston55]

For those of you who have not set up a trust, nor have purchased LTC coverage (which I have read you cannot trust to actually be there someday), how much are you setting aside for self-insuring? And what is your mechanism for doing so? https://www.caniretireyet.com/long-term-care-insurance-why-we-arent-buying-it/

My greatest fear is I will end up in a nursing home for years, and it will bankrupt my spouse. I'd rather pass away quickly, but we all know we can't predict our future demise. My grandmother had Alzheimers and spent - oh I'm guessing 10 or 15 years - in a nursing home. That's a long time to self-insure for. I know it's not typical, but it concerns me since it happened in my family.

I’d suggest you look in to CCRCs. There’s a good FAQ here on E-R.org.

Regarding LTCi, we’ve reached the same conclusion as PB4 - we will not buy it because it’s not a good deal. Note that with LTCi, you are not buying insurance that “covers you for the rest of your life” or “for the duration of your need.” Instead, you are simply buying a future series of payments, usually for a few years. And, a quick NPV calculation will show LTCi for what it is. See this great post by Darrow Kirkpatrick from “CanIRetireYet.’


https://www.caniretireyet.com/long-term-care-insurance-why-we-arent-buying-it/

 

[athena53]

Have you ever seen the Medicare taxes confiscated from your earnings with no upper limit?

Yes, but the poster you were quoting was saying we all pay into MedicAID.

Let's not confuse Medicare with Medicaid, even though it seems half the population does.

 

[CaliKid]

Yes, but the poster you were quoting was saying we all pay into MedicAID.

Let's not confuse Medicare with Medicaid, even though it seems half the population does.

You forgot the

 

[PatrickA5]

I used to think I needed a Living Trust until I looked into it and nothing could be further from the truth.

-gauss

Would you mind telling a little bit about your decision not to get a Living Trust?

We have a couple more appointments with estate planning attorneys coming up. As we stand now, the only assets that we would have to probate are our two houses. So, if it costs more to set up trusts than probate two houses, then we'll probably just go with a Will. At this point, we're probably only considering a simple probate avoidance Trust. We may reconsider some of the other things that Trusts can protect from in the future.

 

[pb4uski]

.... On the other hand, my wife and I manage my BIL's healthcare and finances. BIL has MS and currently resides in an assisted living facility. He has a very good Federal pension, SS Disability income and no retirement assets but he's backstopped with a modest special needs trust my MIL set up before she passed. We can manage his assisted living expenses with his income streams, but if he goes into a skilled nursing facility, which appears likely because MS never gets better and his cognitive skills and mobility are rapidly deteriorating, all of his income streams would be exhausted in 3-5 years because of the cost of skilled nursing care, in which case he would then be reliant on Medicaid.

And IMO that is the way it is supposed to work... you use you own resources to support your needs and if eventually you run out of money then, and only then, Medicaid steps up so we don't have so many poor people in need wandering the streets and they are taken care of.

 

[NoiseBoy]

I am in Illinois, and in my local area, the best assisted living facilities are all 100% private pay. Some of them do not offer skilled nursing and I wonder if that is a way to avoid having to have a certain percentage of Medicare beds? While I don't exactly know how the skilled nursing beds are allocated, I can say that there is a pretty big difference in the quality of the skilled nursing facilities here and the places that seem to take the most public aid patients are not places that I would want to end up.

Put me in the camp of planning to use all of my income and assets to give myself the best quality of care at the end that I can afford. Staying at home does seem to be the best option if you can afford it, although the question of socialization with others is a factor too. I need to read the FAQ on CCRCs.

 

[athena53]

Staying at home does seem to be the best option if you can afford it, although the question of socialization with others is a factor too.

When DH was in his last months, I had a private agency come in occasionally to help with him so I could go out for extended periods- he fell easily so it was getting risky to leave him alone. They charged $22/hour but sent really nice people, who were also willing to do minor housekeeping and cooking and even shopping/driving to and from appointments (with a charge for mileage). They told me they had clients in their 90s who were managing at home with 24/7 help from them. I'm a bit of an introvert but I think I'd find that very isolating.

You were speculating on how nursing homes could be 100% self-pay. One thing I read- haven't verified but it sounded feasible- was that homes that want MediCARE rehab business have to accept a certain % of MediCAID recipients. The rehab business pays them pretty well but requires skilled nursing because it's geared towards someone recovering from, say, major surgery, who needs more care and monitoring than they can get at home. It's always limited as to time. A nursing home that doesn't intend to depend upon Medicare rehab business can skip the skilled nursing part and accept only self-pay.

 

[ChrisC]

And IMO that is the way it is supposed to work... you use you own resources to support your needs and if eventually you run out of money then, and only then, Medicaid steps up so we don't have so many poor people in need wandering the streets and they are taken care of.

It works this way because my BIL has no wife and no child worthy of sheltering assets, because he no longer owns a house, and because he has no other tangible assets of value to pass on to anyone (and we'll likely further backstop his healthcare and welfare if Medicaid proves too cumbersome to us for his LTC).

The point here is that it works quite differently for many middle class people or blue collar workers who have limited assets and recources, except for the modest house they might possess that they would like to ensure gets kept for their children, instead of sold and used to pay for their LTC, when they see Medicaid as a source of financing their LTC. It's perhaps a reason why, as one poster mentioned, that Life Estate Deeds appear to be big in New York -- it's a convenient and cheap way of attempting to save the house from being used as a countable asset for Medicaid eligibility. Given the emotional pull that many people have in keeping their house for their children -- and not having the Gumint use it for their care -- I don't begrudge anyone who attempts to save the house, if squarely within the Medicaid rules.

 

[pb4uski]

OK... fair enough (not necessarily agreeing but accepting for now)... but how about someone who wants to save for their heirs... in addition to the house... $100k?... or $500k?.... or $1 million... or $2 million? Does it become distasteful to you at some point?

 

[ncbill]

I am in Illinois, and in my local area, the best assisted living facilities are all 100% private pay. Some of them do not offer skilled nursing and I wonder if that is a way to avoid having to have a certain percentage of Medicare beds?

If you or your loved one has dementia they probably won't be in assisted living as long as you think.

Here (not a very regulated state) a doctor has to certify the appropriate level of care annually on an evaluation form for those in facilities.

And to be blunt those I've known living long-term (3+ years) with dementia who are institutionalized spend most of that time in skilled nursing level care, not assisted living.

 

[nun]

(Note that I have no intention of hiding assets for Medicaid. My wife and I both have Long Term Care insurance, and have set up our portfolios to meet all our needs in retirement. But I will still feel free to use whatever rules are available to me in order to maximize my portfolio and eventually my estate.)

When I first retired I was living off savings and even though my assets were substantial I had very little income. So I didn't qualify for ACA and was put on Medicaid. So even though I was a millionaire the state paid for my health insurance. As far as LTC goes I won't be using trusts as I have a MetLife LTC policy I bought in my mid-30s. It costs $28/month and pays $300/day with a lifetime cap of $360k

 

[Teacher Terry]

Even if your house is your only asset it is still unethical to shield it for your kids. Medicaid is for broke people. Plus let's face it as the boomers age there is only so much $ to go around. Everyone can't be on Medicaid.

 

[ChrisC]

OK... fair enough (not necessarily agreeing but accepting for now)... but how about someone who wants to save for their heirs... in addition to the house... $100k?... or $500k?.... or $1 million... or $2 million? Does it become distasteful to you at some point?

Nope, as long as the rules permit this, it's not distasteful or abhorrent to me, though I wouldn't encourage it for anyone I know who has funds to privately pay for LTC since reliance on Medicaid should be a last ditch effort and by going on Medicaid you sacrifice choice and quality of care.

It's also not distasteful to me to see U.S. corporations that play by the rules to move their assets or book revenues offshore to avoid Federal income taxes; for people to engage in race horse strategies for recharacterizing Roth conversions (now not permitted under the new tax law); for people to do 1031 exchanges where they ultimately convert the exchanged property to a personal residence and avoid capital gains if they never sell the personal residence; etc. It wouldn't matter if the financial impact were 10 cents or 10 million dollars. I am truly surprised that you appear to gauge the ethics of a situation based on dollars and cents -- a point that one other poster suggested was an argument he never heard before in these debate; perhaps when you say "distasteful" you're not speaking from a framework grounded in ethics.

My moral compass is quite different from those who believe there is an ethical problem with people who play by the rules (unless the rules themselves are inherently immoral) and take advantage of an opportunity permitted by the rules. If enough people take advantage of a situation permitted by the rules that becomes morally offensive or causes financial harm to a sizeable group, the rules will likely change.

 

[foxfirev5]

Even if your house is your only asset it is still unethical to shield it for your kids. Medicaid is for broke people. Plus let's face it as the boomers age there is only so much $ to go around. Everyone can't be on Medicaid.

EXACTLY. Back in my parents day you avoided welfare or "Medicaid" at all expense. Grandma almost made it and her sister avoided it by spending down virtually all assets from her families business. Both lived to 100.
Guess what. We all made it and I like to think we're better for it.

 

[pb4uski]

Ok, let's have a poll and see what other members think.

http://www.early-retirement.org/for...-is-the-most-unethical-90388.html#post1999398

Here are the results of the poll.... [Mod Edit]

There were 169 responses.

• 29% (49) responded none of the strategies provided were unethical... a common rationale seemed to be that if it was within the rules and legal then it was by default ethical.
  
• 71% (120) believed that one or more of the strategies was unethical.

• Of those, 62% believed that structuring your assets to obtain Medicaid LTC benefits or taking unemploment when you had no intention of returing to work was unethical (in both cases about 44% of all respondents).
• About 21% believed that managing income to receive ACA subsidies was unethical.

One respondant believed that timing Roth conversions to reduce income taxes or timing when you start SS to optimize benefits was unethical.

View Poll Results: Which of these financial planning strategies are unethical in your opinion?
Manage timing of Roth conversions to reduce the income taxes that you pay		1	0.59%
Manage your income to optimize ACA subsidies		25	14.79%
Time when you start taking social security retirement benefits to optimize your benefits		1	0.59%
Structure your assets so you can obtain Medicaid LTC benefits		75	44.38%
Take unemployment when you have no intention of returning to work		74	43.79%
None of the above		49	28.99%

 

[Huston55]

Whenever you find yourself on the side of the majority, it’s time to pause and reflect.

 

[Sue J]

When my widowed Dad needed to move to assisted living my sister started talking about how he and Mom never sheltered anything for us and he could be wiped out by nursing home costs, leaving nothing for us to inherit. She insisted that all of her sophisticated friends had their parents shelter their assets so that they could get Medicaid.

Dad was a Veteran and my sister wanted him to qualify for the Aid and Attendance program. There is an asset limit of about $80,000 (depending on your age and condition). He had about $250,000 in an IRA.

My sister set up a meeting with an Elder Attorney Law practice. I was trying to stay open minded and was there to learn. The idea was to take all of his money out of the IRA and put it into an irrevocable trust. I knew it would all be taxable. This was presented to us as a way to qualify him for the Veterans aid and also to be set up in case he lived past the 5yr Medicaid look back period.

Most of this made me uncomfortable, especially since I was his POA and he was not at the meeting. The assumption is that EVERYBODY DOES THIS. Only unsophisticated simpletons who like to pay for things they don't have to pay for would not take this route! The taxes and lawyers fees were substantial, but of course that would be outweighed by the benefits he would get - if he lived long enough.

My sister was shocked that I would even think twice about this. Why would I even question what all her friends have done or these fine Elder Law attorneys?

We took a few days to explain it to Dad and I wanted to think about it and make a spreadsheet or two. My sister wanted me to just sign the papers since I was POA. I'm glad I hesitated because Dad called his accountant and told him "My daughters want to make me look poor". He knew exactly what "move all your money to an irrevocable trust so that you can qualify for government benefits" meant. Even on his downhill slide he understood. He remembered being a kid during the Depression and how his single mother was "on the dole".

My sister and I got together to decide if we would proceed or not and she agreed with me to not sign and if needed we would revisit the issue later. Dad lived another 4 years, paying his own way for assisted living and then a hospice facility. When he died we each got a small inheritance, which was good enough for me.

He was quite proud that he had worked and saved and invested so that he could pay his own bills when he needed help near the end.

 

[Teacher Terry]

Your Dad did the right thing and so did you. Besides Medicaid won't pay for assisted living so he would have had to go right to a nursing home. I am sure what he paid for was much nicer.

 

[MichaelB]

Your Dad did the right thing and so did you. Besides Medicaid won't pay for assisted living so he would have had to go right to a nursing home. I am sure what he paid for was much nicer.

Medicaid rules are implemented by State, so what they will pay differs around the country. There is no rule that prohibits them from paying for Assisted Living facilities and they do so in many instances.

 

[Sue J]

Your Dad did the right thing and so did you. Besides Medicaid won't pay for assisted living so he would have had to go right to a nursing home. I am sure what he paid for was much nicer.

We knew that he would be covering the full cost of the assisted living facility. The expectation was that he would eventually need a nursing home. We didn't know if that would be 6 months later or 5 years later.

The initial purpose of talking to the lawyers was to get him qualified for the Veteran Aid and Attendance benefit. That one has an asset test but doesn't have a look back period like Medicaid. My sister and BIL were all in a tizzy over him spending down his own assets to pay for his own care. When they saw that I was POA they started to pressure me to take over control of his money so that we could "protect his assets" so that there would be something left over to pass down to us.

The ironic part of this is that my sister and BIL are very wealthy. Plenty of assets and maximum SS benefits. I can't imagine what they would do with a larger inheritance as they can't possible spend what they already have, and they try very hard. Their yearly travel expenses are more than DH and I live on in a year!

Just gives you a little hint as to why I (younger sister living out of the area) was the POA instead of her (older sister who lived 2 miles from Dad). My inheritance is very appreciated as a legacy of my parents. To my sister and BIL the RMD on the inheritance is another line item added to their tax torpedo. He turned 70 in 2017 and they are in the 33% bracket, or whatever the new percentage is after the new tax laws.

 

[athena53]

Plus let's face it as the boomers age there is only so much $ to go around. Everyone can't be on Medicaid.

That's one of my concerns. If states are running out of Medicaid funds because of LTC expenses, they face difficult choices: raise taxes, cut benefits, tighten eligibility requirements, cut reimbursement rates, etc. All have different consequences- everything from reducing the numbers of doctors/nursing homes that take Medicaid, making it harder for people who genuinely have no money to get needed treatment, cutting other programs. Some people seem to think that they may as well feed at the trough as long as it's there, but my Number One financial priority is paying my own way without help from need-based programs such as Medicaid. My son knows that and is in full agreement.

 

[ChrisC]

When my widowed Dad needed to move to assisted living my sister started talking about how he and Mom never sheltered anything for us and he could be wiped out by nursing home costs, leaving nothing for us to inherit. She insisted that all of her sophisticated friends had their parents shelter their assets so that they could get Medicaid.

Dad was a Veteran and my sister wanted him to qualify for the Aid and Attendance program. There is an asset limit of about $80,000 (depending on your age and condition). He had about $250,000 in an IRA.

My sister set up a meeting with an Elder Attorney Law practice. I was trying to stay open minded and was there to learn. The idea was to take all of his money out of the IRA and put it into an irrevocable trust. I knew it would all be taxable. This was presented to us as a way to qualify him for the Veterans aid and also to be set up in case he lived past the 5yr Medicaid look back period.

Most of this made me uncomfortable, especially since I was his POA and he was not at the meeting. The assumption is that EVERYBODY DOES THIS. Only unsophisticated simpletons who like to pay for things they don't have to pay for would not take this route! The taxes and lawyers fees were substantial, but of course that would be outweighed by the benefits he would get - if he lived long enough.

My sister was shocked that I would even think twice about this. Why would I even question what all her friends have done or these fine Elder Law attorneys?

We took a few days to explain it to Dad and I wanted to think about it and make a spreadsheet or two. My sister wanted me to just sign the papers since I was POA. I'm glad I hesitated because Dad called his accountant and told him "My daughters want to make me look poor". He knew exactly what "move all your money to an irrevocable trust so that you can qualify for government benefits" meant. Even on his downhill slide he understood. He remembered being a kid during the Depression and how his single mother was "on the dole".

My sister and I got together to decide if we would proceed or not and she agreed with me to not sign and if needed we would revisit the issue later. Dad lived another 4 years, paying his own way for assisted living and then a hospice facility. When he died we each got a small inheritance, which was good enough for me.

He was quite proud that he had worked and saved and invested so that he could pay his own bills when he needed help near the end.

Well, for my MIL, we were in a similar situation and we went the other way, though we did not obtain any VA Aid and Attendance benefits as my MIL died before we could apply for the benefits. My MIL grew up in the depression as well, born 3-31-19 and died 7-5-2017, grew up dirt poor, female and black in the rural segregated South, and she was always self-sufficient up until she became incontinent and not very mobile -- almost wheelchair bound. She worked as a Secretary in the Federal Government and had a very modest pension and survivor's annuity, and a modest house. Much to our surprise, she had unknowingly to us, saved around $135K in a Stock DRIP, that she titled jointly with her daughter (my wife) and son (my BIL). Her total assets were around $250K, with a modest income stream of $2500 from her pensions and SS. MIl lived with us on an emergency basis for several months until we couldn't provide the care we wanted for her; so we arranged for a care home/assisted living facility, which would have eventually -- if she lived long enough -- eventually eat all of her assets and leave nothing to take care of her son, who has MS and will eventually need skilled nursing care.

We establised an irrevocable trust, dopping her assets into it (including jointly titled stock), for the benefit of my BIL. We kept around $20K of her assets to private pay for her assisted living, which she enjoyed for the last 5 months of her life. If MIL had lived long enough she would have been eligible for VA Aid and Attendance benefits of around $1100 per month -- along with her income stream from pensions and social security, this would have kept her going in the facility she was staying, which cost $3700 per month -- we would make up any difference and if she later needed skilled nursing care, we would backstop her care for that too.

My MIL was an extremely sharp and stubborn lady -- refusing to live with us and give up her autonomy -- and even at 98 she was fully aware of the financial process we had recommended to her. Our lawyer met several times with her and she didn't blink twice about "sheltering assets" to stretch her financing of assisted living and to take care of her son. For our family, we thought MIL, as a surviving spouse of a WWII veteran, earned the right to these VA benefits -- and we were willing to take these steps, permitted by VA rules to obtain them.

 

[Teacher Terry]

One of my Grandma's had $ saved and she proudly paid for her care. None of her kids were wealthy and all agreed that was the right thing to do. I think people had more integrity in the past. It is fine to accept help if you need it but really a crime to hide your $ so you can live off of public funds no matter how legal it may be. Sue, your Dad was right to choose you to be his POA.