Avoiding Medicaid recovery through estate planning

With people living longer than ever before in history, the possibility of needing long-term care is something that everyone should plan for. Many people incorrectly assume that should long-term care be needed, Medicaid would be available to help with the considerable costs. However, the truth is that Medicaid is only available for those that qualify.

To qualify for Medicaid assistance, it is necessary for you to be defined as "medically needy" under the program and have limited assets in your name. In order to qualify, many believe that they can simply give away their retirement accounts, bank accounts, certificates of deposit, stocks, real estate and other investments away to their children or charities.

Unfortunately this tactic will not work, as Medicaid has a five-year lookback rule as part of its qualification requirements. Under this rule, Medicaid can examine all applicants' financial transactions during the five years prior to the application. If it is determined that the applicant gave away certain assets during the lookback period, Medicaid will impose a penalty that disqualifies the applicant from receiving benefits for a certain period of time.

Once a person has qualified for Medicaid benefits, he or she is allowed to keep certain assets. However, once the recipient has died, the government may file a claim against the recipient's estate (or place a lien on his or her assets) to seek repayment of the benefits paid under Medicaid. For many, this Medicaid recovery process results in a significant loss of assets, including the family home.

Estate planning can help

Fortunately for those planning to rely of Medicaid to help pay for their long-term care costs, it is possible to prevent assets from being sold during the Medicaid recovery process through estate planning. Due to the five-year lookback rule (as well as many other reasons) it is important to start the estate planning process as early as possible before it is anticipated that Medicaid assistance would be needed.

Depending on your age, financial situation and other circumstances, there are a number of estate planning options, such as irrevocable trusts or life estates, that are available. If done early enough, sound estate planning can allow you to receive Medicaid assistance without spending down your assets. In addition, it can keep your most important assets out of the government's hands and allow you to transfer them to whomever you choose after your death.

As this is a complicated and ever-changing area of the law, it is vital to consult with an experienced estate planning attorney. An attorney can advise you of your situation and recommend an option that would best accomplish your end-of-life goals.