Long-term care comes at a tremendous financial price, especially around-the-clock nursing home care. The cost of a private room in a nursing home in New Jersey is at least $12,000 per month, and may be more.

Most people end up paying for long-term care and/or nursing home care out of their savings until they spend down all their assets and run out of money, at which point they qualify for Medicaid to pick up the cost. Medicaid, NOT Medicare, is the primary method of paying for long-term care costs and nursing homes in New Jersey and throughout the United States. Medicare will pay for skilled nursing care or rehabilitation services in a facility for up to 100 days, but only after a hospital admission, and even then a co-pay must be paid. Medicare has No long-term care benefit for the chronically ill.

To obtain Medicaid benefits to pay for long-term care costs, applicants can have no more than $2,000 in “countable” assets (i.e., Most assets are “countable” under the Medicaid rules, but some assets are “exempt” or “non-countable” by Medicaid based on the marital status of the applicant) and limited income. Any assets in excess of $2,000 must be spent down before an applicant can qualify for Medicaid. In addition, in order to be eligible for Medicaid, applicants cannot have recently transferred assets. If an applicant transfers assets within five years of applying for Medicaid, the applicant may be subject to a penalty, or a period of ineligibility for Medicaid  benefits. After the applicant dies, Medicaid also has the right to recover from his or her estate, which in the case of a Medicaid applicant usually means only the house.

Careful estate planning in advance can help prepare to pay for the financial burden of long-term care costs and help protect your estate for your spouse or children. If you make a plan before you need long-term care, you may have the luxury of distributing or protecting your assets in advance. This way, when you do need long-term care, you will quickly qualify for Medicaid benefits. The following are some tools that can be used in an estate plan to prepare for Medicaid:

• Trusts. One of most important estate planning tools you can use is an “irrevocable” trust — a trust that cannot be changed after it has been created. In most cases, this type of trust is drafted so that the income is payable to you (the person establishing the trust, called the “grantor”) for life, and the principal cannot be applied to benefit you or your spouse. At your death the principal is paid to your heirs. This way, the funds in the trust are protected and you can use the income for your living expenses. For Medicaid purposes, the principal in such trusts is not counted as a resource, provided the trustee cannot pay it to you or your spouse for either of your benefits. However, if you do move to a nursing home, the trust income will have to go to the nursing home. And to avoid Medicaid’s “look-back period,” the trust must be funded at least five years before applying for benefits.
• Annuities. Annuities are another tool married couples can use to prepare for Medicaid. An immediate annuity, in its simplest form, is a contract with an insurance company under which the policyholder pays a certain lump sum of money to the insurer and the insurer sends the policyholder a monthly check for the rest of his or her life. In most states the purchase of an annuity is not considered to be a transfer for purposes of eligibility for Medicaid, but is instead the purchase of an investment. It transforms otherwise countable assets into a non-countable income stream. As long as the income is in the name of the spouse who is not in the nursing home, it’s considered non-countable. For single individuals, annuities are less useful, but if you transfer assets, you may be able to use an annuity to pay for long-term care during the Medicaid penalty period that results from the transfer.
• Protecting your home. After a Medicaid recipient dies, the state must attempt to recoup from his or her estate whatever benefits it paid for the recipient’s care. This is called “estate recovery.” For most Medicaid recipients, their house is the only asset available, but there are steps you can take to protect your home. Putting your house in a trust can be a good option, but once a house is placed in an irrevocable trust, you cannot remove it. Another option is a life estate, which is a form of joint ownership of property between two or more people. They each have an ownership interest in the property, but for different periods of time. The person holding the life estate possesses the property currently and for the rest of his or her life. The other owner has a current ownership interest but cannot take possession until the end of the life estate, which occurs at the death of the life estate holder.

There are numerous other estate planning strategies which may be used to pay for long-term care costs and help protect your estate for your spouse or children

To determine whether your estate plan should include preparation for possible Medicaid eligibility, seek advice from an experienced elder law attorney.

(This blog post was adapted from articles on the ElderLawAnswers website. Mr. Vanarelli is a founding member of ElderLawAnswers.)

For additional information concerning estate planning and administration, visit:

Estate Planning and Administration

For additional information concerning Medicaid and public benefits planning, visit:

NJ Medicaid and Public Benefits Planning