- posted: May 30, 2020
- Estate Planning
Perhaps the greatest myth of retirement planning is that you only need to worry about having enough income to take care of basic living expenses. Many a person has retired with a comfortable retirement “salary,” sourced from a 401k, Social Security, an IRA, and perhaps a pension, only to find themselves in financial ruin when they need assisted care in their later years.
The cost of in-home nursing care can be astronomical, and even nursing home stays can easily run five figures per month for an average facility. Suddenly, that retirement income, which once appeared so comfortable, amounts to subsistence level at best. Add on co-pays for healthcare procedures and expensive medications, and many retirees fight it hard to make ends meet.
This is where Medicaid benefits come in. A key part of long-term care planning is factoring in Medicaid eligibility and the income and asset limits that may prevent qualification.
If you bring in a lot of money each month, you probably will not qualify for Medicaid. You may be surprised how low the income limits really are for eligibility. For a single person needing in-home or nursing home care, the income limit for 2019 in Arizona is only $2,313 a month, or $4,626 for married couples.
With such low limits, many people who are receiving a pension and who qualify for Social Security or SSDI payments have too much income for Medicaid eligibility but not enough to pay the bills. One solution is a Miller Trust —known as an income-only trust in Arizona. Retirees that need to lower their on-paper income to meet eligibility standards can divert some sources of income, such as an IRA account, to this form of trust until their remaining income sources fall below the limit. The money in the trust can be spent on the retiree’s healthcare needs. However, any money left in the trust at death is considered unclaimed property and as such escheats to the state.
The other major obstacle is Medicaid’s limit on the assets one can hold. In Arizona, the limit is a mere $2,000, though some assets (such as a modest personal residence) are excluded. If you have more assets set aside when you apply, you may be able to “spend down” your savings and assets on healthcare and necessary home modifications (like adding a wheelchair ramp) until you are below the limit. You can also pay down your mortgage or other debts. On the other hand, you can’t simply give away assets to relatives or otherwise hide them. The state will look back at 60 months of records to try to find suspicious asset transfers.
As you can see, the eligibility requirements are strict and getting there requires an intimate knowledge of the rules for spend-downs and income-only trusts. Most people don’t consider their need for long-term care until they actually need it, but that 60-month lookback period means you have to plan several years ahead or risk becoming ineligible.
For retirees in the Mesa, Arizona area, estate planning attorney Joseph M. Udall can help with long-term care planning and with shaping income and asset strategies to meet Medicaid eligibility requirements. Call 480-500-1866 or contact us online for a free telephone consultation. Saturday and evening appointments are available.