“People often make the mistake of assuming they will never need Medicaid benefits, only to find out that not only are Medicaid benefits needed but lack of planning ahead may result in the loss of hard earned assets.”
MEDICAID PLANNING – WHY YOU SHOULD INCLUDE IT IN YOUR ESTATE PLAN
RICHARD B. SCHNEIDER OREGON ESTATE PLANNING ATTORNEY
For most people, a comprehensive estate plan does much more than simply provide a framework from which assets are divided upon death. A well thought-out estate plan can also incorporate retirement planning, incapacity planning, and long-term care planning. One addition to your estate plan that is important to consider is Medicaid Planning. People often make the mistake of assuming they will never need Medicaid benefits, only to find out that, not only are Medicaid benefits needed, but lack of planning may result in the loss of hard earned assets.
THE REALITY OF GROWING OLDER The average life expectancy in America continues to rise. In the past century the average life expectancy has soared from just under 50 years to close to 80 years. While advances in medicine, science and technology have increased our life expectancy, no one has found a way to halt the natural aging process. Therefore, the longer you live the higher the odds that you will one day need long-term care. The following statistics may help you understand why growing older comes at a cost in America: • 9 million – the number of people over the age of 65 who needed long-term care in 2012. • 12 million – the number of people over the age of 65 who are expected to need long-term care by in the year 2020. • 40 percent – percentage of people who reach age 65 who will go on to need long-term care at some point in their lives.
Medicaid Planning – Why You Should Include It in Your Estate Plan
www.rbsllc.com
2
• 75 percent – percentage of people living to age 85 who will need long-term care at some point. • 40 percent – percentage of the elderly who need long-term care and who have income at or below 150 percent of the federal poverty level. • 49 percent – percentage of nursing home costs that were covered by Medicaid in 2002. • 7.5 percent – percentage of nursing home costs that were paid by private insurance in 2002. • 2.5 years -- the average length of stay in a nursing home. • $48,270 -- median annual cost of assisted living in Oregon for 2013. • $84,680 -- median annual cost of a semi-private nursing home in Oregon for 2013.
WHO PAYS FOR LONG-TERM CARE? The longer you live, the more likely you, or a spouse, will need long-term care. Who will pay the high cost of that care? People often assume that their private health insurance plan will cover long-term care; however, as the above figures
Medicaid Planning – Why You Should Include It in Your Estate Plan
www.rbsllc.com
3
indicate, very few private healthcare plans cover long-term care. If you are counting on Medicare to cover the costs you will also be disappointed. Medicare only covers long-term care costs in very specific circumstances and then only for a maximum of 120 days. If you are forced to pay for long-term care out of pocket, a lifetime of hard work and savings can be diminished in a relatively short period of time, given the rising cost of longterm care. This is why you may one day need to qualify for Medicaid benefits. Unlike private plans and Medicare, Medicaid does cover long-term care costs.
WHY MEDICAID PLANNING IS ESSENTIAL Now that you are convinced of the likely need for Medicaid benefits, you may be wondering why you need to plan ahead to obtain those benefits. First, a short discussion on the difference between Medicare and Medicaid is beneficial. Although both Medicare and Medicaid are funded by the federal government, Medicare is an entitlement program while Medicaid is not. What this means is that everyone who has either paid into Medicare or had a spouse who paid into the program (or both) is automatically entitled to participate at retirement age. The Medicaid program, on the other hand, requires you to qualify for participation.
Medicaid Planning – Why You Should Include It in Your Estate Plan
www.rbsllc.com
4
Like other states, the Oregon Medicaid program has income and asset limits that apply to eligibility. The income limit may not be a bar to eligibility; however, the asset limit often is. An individual applying based on age or disability may not have countable assets valued at over $2,000. Though some assets are exempt, and therefore are not counted toward the asset limit, it is very easy for an older applicant to be disqualified based on assets. If you have assets that exceed the asset limit you will have to “spenddown” those assets before the Medicaid program will start covering your long-term care costs. In essence, this means you will have to use your assets to cover those costs until they are diminished to the point where they are valued below the asset limit. A lifetime of hard work, saving, and investing wisely can be gone in the blink of an eye if you, or a spouse, needs long-term care and you didn’t plan ahead.
WHY CAN’T YOU SIMPLY TRANSFER ASSETS OUT OF YOUR NAME? Your initial reaction when you realize that your assets prevent you from qualifying for much needed Medicaid benefits will likely be to transfer those assets to an adult child or other loved one. Unfortunately, this won’t solve the problem. Medicaid has a five year “look-back” period that requires a review of all asset transfers you have made in the five years prior to applying for Medicaid benefits. Most transfers made during the “look-back” period will be treated as
Medicaid Planning – Why You Should Include It in Your Estate Plan
www.rbsllc.com
5
if they never occurred. The value of the asset will be imputed back to you as if the transfer never took place. For this reason, simply transferring assets at the last minute isn’t usually an option.
MEDICAID PLANNING – HOW IT CAN HELP By now the need for Medicaid planning should be clear. Your odds of needing long-term care for you or a spouse are high and increase the longer you live. Neither private health insurance nor the Medicare program will pay those costs. Medicaid eligibility requirements include a very low asset limit that cannot be overcome by transferring assets at the last minute. For these reasons, Medicaid planning should be included in your estate plan long before you reach retirement age. There are a number of legitimate and legal estate planning tools and strategies that can be employed to ensure that you and your spouse will qualify for Medicaid should the need arise. Placing assets into a trust, for example, can remove those assets from your countable assets. Each Medicaid plan is as unique at the individual creating the plan. Consult with your estate planning attorney to determine what to include in your Medicaid plan. If you find yourself in a position where you, or a spouse, need to qualify for Medicaid benefits and you failed to plan ahead, there may be steps you can take to decrease your countable assets even at the last minute. For example, you may be able to convert a countable asset into an exempt asset. Paying off your mortgage loan with funds held in a savings account,
Medicaid Planning – Why You Should Include It in Your Estate Plan
www.rbsllc.com
6
for instance, may be able to effectively convert a countable asset into an exempt asset. Whether you are thinking ahead or looking for last-minute options, be sure to discuss your needs and concerns with your estate planning attorney.
Genworth Cost of Care Survey, Oregon State Median Annual Care Costs in 2013 Oregon.gov, Aging and People with Disabilities Caregiverlist, Oregon Medicaid Eligibility Requirements for Seniors
Medicaid Planning – Why You Should Include It in Your Estate Plan
www.rbsllc.com
7
About the Author Richard B. Schneider Before devoting his professional efforts primarily to estate planning, Mr. Schneider spent over fifteen years working on Wall Street for major law firms and investment banks. After graduating from law school, he practiced general civil law in New York City for five years, specializing in business transactions, financings and corporate matters. He also represented major investment banking firms in mortgage trading and real estate-related matters. Among his clients were international shipping companies, commercial and investment banks and institutional lenders, including General Electric Capital Corporation, Salomon Brothers and Merrill Lynch. For the next ten years Mr. Schneider served as Senior Vice President at the investment banking firm of Kidder, Peabody, where he managed outside legal counsel for a variety of large financial transactions between major institutions. He played a central role in the creation of Kidder, Peabody’s mortgage trading subsidiary and advised and executed transactions with insurance companies, pension funds and government agencies, including the Resolution Trust Company. In 1996 Mr. Schneider established a residence in Portland, Oregon and began his law practice there in 1997. He has made a long-term commitment to providing first-class estate planning legal services to families and individuals within the Portland metropolitan area and the surrounding SW Washington region. His motivations for moving to the Northwest were several: the natural scenic beauty of the Northwest landscape, the clean air and streets, the healthy, diversified economy and the overall high quality of life. Mr. Schneider is very grateful for the warm reception he has received from Portland/Vancouver and is pleased to have become a respected member of the Portland/Vancouver legal and business community. Mr. Schneider is a member of the American Academy of Estate Planning Attorneys, the National Academy of Elder Law Attorneys, the Estate Planning Council of Portland and is on the board of directors of the the Rental Housing Association of Greater Portland. He is admitted to practice in Oregon, Washington and New York. Law Offices of Richard B Schneider, LLC www.rbsllc.com 2455 NW Marshall St, Suite 11 Portland, OR 97210 Phone: (503) 241-1215
Medicaid Planning – Why You Should Include It in Your Estate Plan
www.rbsllc.com
8