The uncertainty associated with long-term health care (LTC) needs often couples with horror stories of people losing life savings due to needing LTC, like a nursing home.
Eligibility for institutional Medicaid is typically a goal for people who do not have LTC (nursing home) insurance or whose LTC insurance is not for unlimited, lifetime coverage (and almost no long-term care/nursing home insurance policies provide lifetime coverage).
Although there are many aspects to planning for LTC, there are three pillars that compose the foundation upon which planning to become eligible for institutional Medicaid is based. Each of the three pillars are best used at least five years in advance of needing LTC, but they can often also be used with some other tools to provide some protection if undertaken within five years of needing LTC.
First, people can give away their assets five years before they expect to need LTC. The drawbacks of the gifting pillar of planning include the fact that the givers of the gifts no longer have any control over the gifts after the gifts are given. Additionally, by giving away assets that may have increased in value over time (like stocks, bonds and real estate), giving those assets away before death can miss an opportunity to minimize or eliminate capital gains taxes for heirs and other family members.
Second, for real estate, people can undertake a certain type of life estate (like a life lease), through which the person desiring to become eligible for institutional Medicaid after five years can retain ownership and possession of that real estate until that person dies. These life estates must have certain attributes and must include certain, key language. The downsides of the life estate pillar of LTC planning is that this only works with real estate, and it still allows Medicaid to place a lien on the property after the death of the person who was on Medicaid.
Third, a certain, specific type of trust, often called an irrevocable/Medicaid trust can shield assets from being countable and able to be used for LTC. Such a trust is almost completely non-amendable and irrevocable, but it includes the ability to make a limited number of changes to the trust rules, which ability allows the trust to minimize or eliminate capital gains taxes for heirs and other family members.
An irrevocable/Medicaid trust operates similar to the life estate pillar described above, except that an irrevocable/Medicaid trust can protect more than just real estate, and it is not subject to a post-death lien against heirs and surviving family members.
The negatives of using an irrevocable or Medicaid trust pillar is the cost (is often several thousand dollars) along with the requirement that the person planning for future Medicaid eligibility relinquish significant control.
Finally, LLCs are limited liability companies. LLCs do not provide LTC Medicaid protection. LLCs are most often used within the first and second pillars (gifting and real estate life estates) to organize heirs and beneficiaries, but an LLC itself provides no LTC protection.
Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at Lee@LeeSchroeder.com or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.