Paul O. Dillon, Attorney at Law

Can You Protect Property and Qualify for Long-Term Care with Medicaid?

Long-term care costs keep many seniors and their adult children up at night, with good reason. However, with the right long-term care and asset protection plan, you can protect your home and other assets so you can pay for any supplemental needs and protect a well spouse. A recent article from The National Law Review, “Protecting and Preserving Property When Paying for Long-Term Care” provides details.

Your primary residence remains an exempt asset if you plan to return home. An exempt asset is the term used to describe any asset not countable by Medicaid when considering your eligibility. The property is also exempt if your spouse, minor child, or disabled child lives in the home.

If you have a child who has lived at home with you for at least two years and has provided care that allowed you to remain home, as opposed to being in a nursing home, the property may be transferred to the child, who is then considered a “caregiver child.”

Another permitted transfer of the primary home is to a disabled child. This transfer is allowed by Medicaid and doesn’t lead to any penalty period for Medicaid. Check with your estate planning attorney to ensure that this asset's transfer doesn’t conflict with any Special Needs planning or make the child ineligible for any means-tested government benefits.

Medicaid has a five-year look-back period, when any transfers of any property, as noted above, are not allowed and result in your being ineligible for Medicaid benefits. Many people think Medicaid won’t find out about moving assets, including retitling homes or accounts. However, this is not a good idea in this age of data connectivity.

A Medicaid Asset Protection Trust is commonly used if created five years before applying for Medicaid benefits. The family home, investment accounts and other assets are retitled to be transferred into the trust. The assets within the trust are protected and exempt from Medicaid. This allows the well spouse to continue to live in their home and enjoy using the assets saved for retirement or plan for these assets to be passed to the next generation.

Suppose the need for Medicaid benefits arises and no planning has been done. In that case, some home sale proceeds can be protected by using Medicaid Compliant Annuities and creating supplemental needs trusts. An estate planning attorney will review your situation and determine the best options for each situation.

Reference: The National Law Review (June 20, 2024) “Protecting and Preserving Property When Paying for Long-Term Care”

What’s the Best Way to Simplify an Estate?

Yes, you need to create your estate plan and decide how you want your money and real estate property to be distributed upon your death. However, there’s more. A recent article from Morningstar, “Your family will love you even more if you simplify your estate,” says you should also simplify your assets to simplify your estate.

How you have your financial life arranged now may seem simple enough to you as you navigate it regularly. You know where your accounts are, how much is in each account and who the beneficiaries are of any account, having the option of naming a beneficiary. If you don’t know who the beneficiaries are, take care of this right away.

However, for your executor and your heirs, those same accounts are a series of unknowns. If a single financial advisor doesn’t handle your investments, can you bring them under one person’s management? If you have accounts in more than one bank, can you consolidate them into one bank?

A record number of boomers will turn 65 in 2024. The “great wealth transfer” of a generation owning $72.6 trillion and passing this along to younger generations has led many to prepare accounts and heirs for what will come in the next twenty years. This includes creating a comprehensive estate plan with a will and trusts. Most experienced estate planning attorneys advise their clients to create a revocable living trust to avoid probate, which can be costly, stressful and time-consuming.

Probate is considered one of the most complex parts of inheritance. Distribution will be far simpler if you can remove most of your assets from being part of your probate estate. Trusts can also protect assets in a way wills cannot. It’s far more challenging to contest a trust than it is a will. If your family is prone to infighting, you want to place assets into trusts!

Talk with your estate planning attorney about a “pour-over will.” This is a will directing any assets not already in your trust to be “poured over” into the trust upon your death. You’ll also want to have a financial power of attorney, healthcare power of attorney, living will and HIPAA release. These documents allow the people you designate to take care of your financial, legal and health if you should become incapacitated.

Once your estate plan is in place, start consolidating accounts. If you have multiple IRAs or 401(k)s from various employers, combine them. You've set your heirs up for trouble if you have individual stock certificates in your bank’s safe deposit box. First, the safe deposit box will be sealed upon your death, unless someone else owns the box. Second, stock certificates must be settled through a stock-transfer company, which requires proof of the owner’s passing and proof of their being legitimate heirs. New accounts need to be opened up for the stocks to be transferred to, and only then can they be retrieved the money from the sale of the stocks.

It can also be difficult for heirs if they have annuities, government-issued bonds, or bank CDs. They all must be found, and distribution rules must be uncovered and processed.

After having your estate plan created and consolidating accounts, create an inventory of all accounts, including digital assets (usernames and passwords will be needed), and place them in a file with keys to your safe deposit box, life insurance policies and estate planning documents in one place. Make copies of your credit cards, front and back as well.

Having this information in one place will make managing your estate far easier. Your loved ones can focus on their memories and not be overwhelmed by the details.

Reference: Morningstar (June 18, 2024) “Your family will love you even more if you simplify your estate”

What You Need to Know about Social Security

For millions of Americans, a monthly Social Security deposit into their bank accounts is a crucial source of retirement income. For those who have just started receiving benefits, there are a few basics to know, according to a recent article from NASDAQ: “New to Social Security? 3 Things You Need to Know.”

Social Security knows inflation is a problem for seniors living on fixed incomes. If you’re receiving $1,800 a month right now, in five years, the same amount of money won’t have the same purchase power as it does today. Every year, Social Security examines inflation and adjusts benefits, known as the Cost Of Living Adjustment, or COLA.

COLA’s goal is to ensure that your buying power stays the same over time. It’s not a pre-set amount but is based on inflation data. Unlike an annuity, which increases at a certain rate, Social Security COLA rates are reviewed and increased depending on inflation data. There may be one year when benefits increase a lot, but there will also be years when increases are practically nil if inflation is low.

You may continue to work and receive Social Security benefits, but if you haven’t reached Full Retirement Age, your benefits will have an earnings test limit. Full Retirement Age is when you can collect your monthly benefit in full based on your past earnings history. After this date, based on your birthday date, you can earn as much as possible without any benefits being withheld.

If you’ve started taking benefits before that time, an earnings-test limit will deduct a certain amount from your benefits. The limit, like the COLA, changes every year. In 2024, it’s $22,320 or $59,520 for wage earners who will reach their FRA in 2024 but haven’t gotten there yet.

The funds are not lost forever if you earn more than the limit. When you reach FRA, the money will be returned to your monthly benefit. But you must consider the deduction if you’re creating a household budget.

Social Security does have serious challenges that may impact your benefits. The dramatic headlines about Social Security trust funds running out of money come in waves, but there are some real problems ahead to be aware of. The trust funds are expected to run dry in 2034. While a lot can happen in ten years, seniors would be wise to try to bank some of their benefits in case they shrink. The more saved, the easier it may be to manage if and when these cuts occur.

While Congress may always act to fund the trusts, working a part-time job or as a consultant in your field may be an excellent way for many retirees to prepare for any future cuts and reduce their dependency on Social Security benefits.

Reference: NASDAQ (March 18, 2024) “New to Social Security? 3 Things You Need to Know”

What Is the Advantage of a Step-Up Basis for Estates?

The adjustment in the cost basis is sometimes overlooked in estate planning, even though it can be a tax game-changer. Under this tax provision, an inherited asset’s cost basis is determined not by what the original owner paid but by the value of the asset when it is inherited after the original owner’s death.

Since most assets appreciate over time, as explained in the article “Maximizing Inheritance With A Step Up” from Montgomery County News, this adjustment is often referred to as a “step-up” basis. A step-up can create significant tax savings when assets are sold and is a valuable way for beneficiaries to maximize their inheritance.

In most cases, assets included in the decedent’s overall estate will receive an adjustment in basis. Stocks, land, and business interests are all eligible for a basis adjustment. Others, such as Income in Respect of the Decedent (IRD), IRAs, 401(k)s, and annuities, are not eligible.

Under current tax law, the cost basis is the asset’s value on the date of the original owner’s death. The asset may technically accrue little to no gain, depending on how long they hold it before selling it and other factors regarding its valuation. The heir could face little to no capital gains tax on the asset’s sale.

Of course, it’s not as simple as this, and your estate planning attorney should review assets to determine their eligibility for a step-up. Some assets may decrease in value over time, while assets owned jointly between spouses may have different rules for basis adjustments when one of the spouses passes. The rules are state-specific, so check with a local estate planning attorney.

To determine whether the step-up basis is helpful, clarify estate planning goals. Do you own a vacation home you want to leave to your children or investments you plan to leave to grandchildren? Does your estate plan include philanthropy? Reviewing your current estate plan through the lens of a step-up in basis could lead you to make some changes.

Let’s say you bought 20,000 shares of stock ten years ago for $20 a share, with the original cost-basis being $400,000. Now, the shares are worth $40 each, for a total of $800,000. You’d like your adult children to inherit the stock.

There are several options here. You could sell the shares, pay the taxes, and give your children cash. You could directly transfer the shares, and they’d receive the same basis in your stock at $20 per share. You could also name your children as beneficiaries of the shares.

As long as the shares are in a taxable account and included in your gross estate when you die, your heirs will get an adjustment in basis based on the fair market value on the day of your passing.

If the fair market value of the shares is $50 when you die, your heirs will receive a step up in basis to $50. The gain of $30 per share will pass to your children with no tax liability.

Tax planning is part of a comprehensive estate plan, where an experienced estate planning attorney can help you and your family minimize tax liabilities.

Reference: Montgomery County News (Dec. 20, 2023) “Maximizing Inheritance With A Step Up”

What Do Your Kids Want to Inherit?

Nearly everyone needs a will, also known as a last will and testament, to list all properties and assets and how they should be distributed postmortem. While the decisions are all yours, it’s helpful to know what personal possessions your children may or may not want to receive as part of their inheritance, as explained in the article “12 Things Your Kids Actually Might Want to Inherit” from Entrepreneur.

Making a list of things you want your children to inherit will save a lot of time, especially if you have a lot of possessions you want to give to them. You might think they want your collection of fine china and glassware, silverware and Grandma Helen’s sculptures. However, you might be wrong.

Wanting your children to have these items so they stay in the family isn’t wrong. However, it’s more than likely they’ll be donated after you die. If you want to make your children’s lives a little easier, here are twelve things they actually might want:

Cash money. Cash is the ideal asset, since it can be easily divided. Cash also provides an easy way to give your children a chance to invest in stocks or real estate or a means of starting a business.

Annuities. An inherited annuity has several advantages, including tax benefits, especially if they are non-qualified annuities paid for with after-tax dollars. By annuitizing an annuity, heirs may convert it into a steady and dependable income stream to help cover living expenses. They can choose to do this for a pre-defined period of time or for life, if the original annuity contract was created as a multi-life annuity.

Recipes. There are any number of ways to create a cookbook, from a simple bound folder to a hard-cover book likely to be shared and talked about, bringing warm memories to all.

Family Photos. Whether you take the time to organize them or not, videos and photos are your family’s history. Keep them in a water-proof bin and protect them for the future generations, until you’re ready to hand them over.

Trusts. Trusts are not just for wealthy people. Trusts are an all-purpose tool for passing assets across generations, controlling how they are used and minimizing estate tax liability. A trust is a legal entity to hold a variety of assets. A trust allows you to set down what you want done with the money, from paying for college to buying a first home. You name a trustee who is in charge of managing the trust and making sure your wishes are followed.

Furniture. Today’s young adult is more likely to want authentic furniture with family history than the latest knockdown furniture from Ikea. They also know how expensive good furniture is and may welcome saving money when furnishing their first home.

Vinyl Records. While collectors may value pristine records, the albums you listened to with scratches and skips will be prized by younger listeners. They evoke happy memories and hold sentimental value.

Life Insurance. If you want to leave money for your family but worry about the impact of taxes, life insurance is a good option. Your estate planning attorney will be able to explain who the beneficiary should be, or if you need to set up a trust to benefit your children.

Real Estate. Real estate is a strong investment with a track record of growth. Keeping a vacation home in the family for future generations requires extra planning. For many families, even a simple cabin by the lake is a touchstone of family history.

A Business. Family-owned businesses are often passed to the next generation. An established business has value up front and, if all is well with the business, provides income. A succession plan will be needed. Be realistic: if your children have never set foot in your office or expressed interest in the business, selling it may be a better move.

Investment Accounts. Stocks, bonds or other investment accounts can be gifted to children while you are living or after you die. Like cash, this asset is easily divided and relatively easy to give.

Education Funds. You can start a College Savings Account 529 for individual children when they are born or open one at any time to help with college expenses. Having financial help for college could be the difference between the burden of college loans or being able to explore different careers without the constant worry that a six-figure debt brings.

Your estate planning attorney will be able to explore all of the different ways to transfer wealth to the next generation while you are living and after you pass.

Reference: Entrepreneur (Oct. 30, 2022) “12 Things Your Kids Actually Might Want to Inherit”

When Should I Update My Estate Plan?

Estate planning documents, including wills, trusts, power of attorney and related documents, are designed to reflect life, which inevitably includes a steady stream of changes. Tax laws change, as do families and relationships. A recent article from The Press-Enterprise titled “Avoid probate and audit an estate plan regularly” recommends a review with your estate planning attorney every three to five years. A lot happens in three to five years, including national elections and federal tax legislation.

Start by considering the people you have named to serve after you are incapacitated or after death, including your executor, guardian for minor children, trustee, power of attorney, healthcare proxy and successor trustee. Do you still want those people in their respective roles? Are they still willing to act on your behalf? If they have moved away or have died, you will need to identify new people and update your estate plan.

Has your estate plan stayed current? Some attorneys take a walk down memory lane when they review estate plans, as planning strategies change over the years, reflecting tax laws and social expectations. An old trust might have a provision requiring a division of the trust into two shares at the first spouse’s death. This was done so both spouses’ estate tax exemptions were used. However, the law changed in 2011 and now the surviving spouse automatically preserves the deceased spouses’ estate tax exemption for later use. Dividing the assets into two separate trusts is no longer necessary.

Depending upon your situation, there may be reasons to retain this or other out-of-date provisions.  However, you will not know until you review the documents with an experienced estate planning attorney.

Do your trusts accomplish your current goals? If your trusts were created to protect a spendthrift heir who has now become a model fiscal citizen, you may want to make changes. If you have left your assets outright to beneficiaries and one has entered into a questionable marriage, it is time to protect your beneficiary by having a trust created.

Beneficiary designations should be reviewed every time an estate plan is reviewed. It is likely that you own several assets controlled by beneficiary designations. These may include annuities, life insurance, IRAs, Roth IRAs, investment accounts and many other assets. The beneficiary designation always supersedes the will. Estate planning attorneys, insurance agents and financial advisers see this go wrong all the time.

No matter what your will says, if the name on the beneficiary designation is alive, they will receive the asset. It does not matter if you have not spoken to them in twenty years, or the divorce was ten years ago. This issue is not just about keeping your ex’s hands out of your estate. Here is a good example: a spouse names a now-deceased husband as the beneficiary of an IRA. No contingent beneficiary was named, and no new beneficiary form was updated after the husband died. When the second spouse dies, the default beneficiary of the IRA, worth around $500,000, is the estate. Instead of being distributed directly to a beneficiary, the funds are now part of the probate estate. The IRA will end up in the living trust through a pour-over will stating “I leave everything to my trust.” A simple update could have avoided legal fees, executor fees and delays.

Your estate plan is only as good as its last review. Getting comfortable with the concept of reviewing it every three to five years will protect your goals and your family.

Reference: The Press-Enterprise (Feb. 6, 2022) “Avoid probate and audit an estate plan regularly”

What Should Not Be Included in Trust?

Whether you have a will or not, assets may go through the probate process when you die. People use trusts to take assets out of their probate estate, but they don’t always understand the relationship between wills and trusts. This is explored in a recent article “What Assets Should be Included in Your Trust?” from Kiplinger.

Probate can be a long and expensive process for heirs, taking from a few months to a few years, depending on the size and complexity of the estate. Many people ask their estate planning attorney about using trusts to protect and preserve assets, while minimizing the amount of assets going through probate.

Revocable trusts are used to pass assets directly to beneficiaries, under the directions you determine as the “grantor,” or person making the trust. You can set certain parameters for assets to be distributed, like achieving goals or milestones. A trust provides privacy: the trust documents do not become part of the public record, as wills do, so the information about assets in the trust is known only to the trustees. If you become incapacitated, the trust is already in place, protecting assets and fulfilling your wishes.

Estate planning attorneys know there’s no way to completely avoid probate. Some assets cannot go into trusts. However, removing as many assets as possible (i.e., permitted by law) can minimize probate.

Once trust documents are signed and the trusts are created, the work of moving assets begins. If this is overlooked, the assets remain in the probate estate and the trust is useless. Assets are transferred to the trust by retitling or renaming the trust as the owner.

Assets placed in a trust include real estate, investment accounts, life insurance, annuity certificates, business interests, shareholders stock from privately owned businesses, money market accounts and safe deposit boxes.

Funding the trust with accounts held by financial institutions is a time-consuming process. However, it is necessary for the estate plan to achieve its goals. It often requires new account paperwork and signed authorizations to retitle or transfer the assets. Bond and stock certificates require a change of ownership, done through a stock transfer agent or bond issuer.

Annuities already have preferential tax treatment, so placing them in a trust may not be necessary. Read the fine print, since it’s possible that placing an annuity in a trust may void tax benefits.

Certificates of Deposit (CDs) are usually transferred to a trust by opening a new CD but be mindful of any early termination penalties.

Life insurance is protected if it is placed in a trust. However, there are risks to naming the living trust as a beneficiary of the insurance policy. If you are the trustee of your revocable trust, all assets in the trust are considered to be your property. Life insurance proceeds are included in the estate’s worth and could create a taxable situation, if you reach the IRS threshold. Speak with your estate planning attorney to determine the best strategy for your trust and your insurance policy.

Should you put a business into a trust? Transferring a small business during probate presents many challenges, including having your executor run the business under court supervision. For a sole proprietor, transfers to a trust behave the same as transferring any other personal asset. With partnerships, shares may be transferred to a living trust. However, if you hold an ownership certificate, it will need to be modified to show the trust as the shareowner instead of yourself.  Some partnership agreements also prohibit transferring assets to living trusts.

Retirement accounts may not be placed in a trust. Doing so would require a withdrawal, which would trigger income taxes and possibly, extreme penalties. It is better to name the trust as a primary or secondary beneficiary of the account. Funds will transfer upon your death. Health or medical savings accounts cannot be transferred to a living trust, but they can be named as a primary or secondary beneficiary.

Careful consideration needs to be made when determining which assets to place within a trust and which should remain as part of your probate estate. Your estate planning attorney will know what is permitted in your state and what best suits your situation.

Reference: Kiplinger (Jan. 16, 2022) “What Assets Should be Included in Your Trust?”

Does Anyone Know Where Your Money Is?

A woman’s brother is in a coma. No one in the family, even the man’s wife, knows anything about his savings, investments, debts, or any financial matters. The family doesn’t know who his financial advisor is, if he has a will or how much money is available to pay bills, which are piling up rapidly. When they did locate bank accounts, the family had to work with three different banks to get access to the money. At least there was a Power of Attorney in place, so bills could be paid. However, what else did he own?

The family’s story, as related in the article “Someone Needs to Know Where Your Money Is” from Kiplinger, is not unusual. An estate plan with preparations for incapacity as well as death, shared with his wife or a family member, would have prevented many of these problems. What can you do if faced with this same scenario?

Finding the most recent tax return will yield a lot of information. This document will have the name of the person who prepared the return, if the person used a CPA. The tax return will also document income and possibly list some assets. Information like earned interest, dividends, pension income and withdrawals from retirement accounts will be on the tax return. If you know the name of the person’s employer, call the human resources department, since they may be aware of a life insurance benefit or a 401(k) account.

The person in this example was admitted to the hospital and their health deteriorated so rapidly that there was no time to make any proper arrangements. We never know what the future will bring. Having an estate plan and gathering information on finances and assets—and sharing this information with loved ones—should be done by everyone.

Here are the documents most people need in case of incapacity:

• Will, Financial Power of Attorney and Trust Documents, if any exist
• Bank, Investment and Social Security statements
• Information for all online assets, including financial assets, websites, business accounts and cryptocurrency
• List of all Retirement Accounts, annuities and life insurance policies
• Cost basis of all investment in taxable brokerage accounts or stocks
• A list of any assets of value, including real estate and automobiles
• A list of debts, and
• Most recent tax returns.

Schedule B on a tax return can reveal some surprises for family members. If there are no paper records or log-in information to financial websites, ask the tax preparer for a copy of the 1099 form for each asset. Once the list is complete, put together the information, along with all insurance company information and the tax return, into a large envelope to be reviewed once a year.

Some estate planning attorneys keep original wills for clients, but not all do. Contact your estate planning attorney to find out what would happen if you became incapacitated and be sure to have the necessary documents created or updated, including a will, financial power of attorney, health care power of attorney and any trust documents. A copy of your Social Security card, birth and marriage certificates and your estate planning documents can go into a big envelope marked “Legal Documents” and placed in a secure location, also to be reviewed annually.

Tell your executor and trusted family members where these documents are, so they can be accessed when needed. They will be able to act on your behalf in the event of incapacity and you will have spared them unnecessary stress and expenses.

Reference: Kiplinger (Nov. 1, 2021) “Someone Needs to Know Where Your Money Is”

How Do You Plan for the Death of a Spouse?

The COVID pandemic has become a painful lesson in how important it is to having estate plans in order, especially when a spouse becomes sick, incapacitated, or dies unexpectedly. With more than 400,000 Americans dead from the coronavirus, not every one of them had an estate plan and a financial plan in place, leaving loved ones to make sense of their estate while grieving. This recent article from Market Watch titled “How to get your affairs in order if your spouse is dying” offers five things to do before the worst occurs.

Start by gathering information. Make all of your accounts known and put together paperwork about each and every account. Look for documents that will become crucial, including a durable power of attorney, an advanced health care directive and a last will. Gather paperwork for life insurance policies, investment portfolios and retirement accounts. Create a list of contact information for your estate planning attorney, accountant, insurance agent, doctors and financial advisors and share it with the people who will be responsible for managing your life. In addition, call these people, so they have as much information as possible—this could make things easier for a surviving spouse. Consider making introductions, via phone or a video call, especially if you have been the key point person for these matters.

Create a hard copy binder for all of this information or a file, so your loved ones do not have to conduct a scavenger hunt.

If there is an estate plan in place, discuss it with your spouse and family members so everyone is clear about what is going to happen. If your estate plan has not been updated in several years, that needs to be done. There have been many big changes to tax law, and you may be missing important opportunities that will benefit those left behind.

If there is no estate plan, something is better than nothing. A trust can be done to transfer assets, as long as the trust is funded properly and promptly.

Confirm beneficiary designations. Check everything for accuracy. If ex-spouses, girlfriends, or boyfriends are named on accounts that have not been reviewed for decades, there will be a problem for the family. Problems also arise when no one is listed as a beneficiary. Beneficiary designations are used in many different accounts, including retirement accounts, life insurance policies, annuities, stock options, restricted stock and deferred compensation plans.

Many Americans die without a will, known as “intestate.” With no will, the court must rely on the state’s estate laws, which does not always result in the people you wanted receiving your property. Any immediate family or next of kin may become heirs, even if they were people you with whom you were not close or from whom you may even have been estranged. Having no will can lead to estate battles or having strangers claim part of your estate.

If there are minor children and no will to declare who their guardian should be, the court will decide that also. If you have minor children, you must have a will to protect them and a plan for their financial support.

Create a master list of digital assets. These assets range from photographs to financial accounts, utility bills and phone bills to URLs for websites. What would happen to your social media accounts, if you died and no one could access them? Some platforms provide for a legacy contact, but many do not. Prepare what information you can to avoid the loss of digital assets that have financial and sentimental value.

Gathering these materials and having these conversations is difficult, but they are a necessity if a family member receives a serious diagnosis. If there is no estate plan in place, have a conversation with an estate planning attorney who can advise what can be done, even in a limited amount of time.

Reference: Market Watch (Jan. 22, 2021) “How to get your affairs in order if your spouse is dying”

Protect Assets from Medicaid Recovery

Medicaid is a government program used by Americans to pay for nursing home and long-term care. The Medicaid Estate Recovery Program (MERP) is used to recoup costs paid toward long term care, so that the program can be more affordable for the government, says the article “What is Medicaid Estate Recovery?” from kake.com. Beneficiaries of Medicaid recipients are often surprised to learn that this impacts them directly.

Medicare was created to help pay for healthcare costs of Americans once they reach age 65. It covers many different aspects of healthcare expenses, but not costs for long-term or nursing home care. That is the role of Medicaid.

Medicaid helps pay the costs of long-term care for aging seniors. It is used when a person has not purchased long-term health care insurance or does not have enough money to pay for long-term care out of their own funds.

Medicaid is also used by individuals who have taken steps to protect their assets using trusts or other estate planning tools.

The Medicaid Estate Recovery program allows Medicaid to be reimbursed for costs that include the costs of staying in a nursing home or other long-term care facility, home and community-based services, medical services received through a hospital when the person is a long-term care patient and prescription drug services for long-term care recipients.

When the recipient passes away, Medicaid is allowed to pursue assets from the estate. That often varies by state, but for the most part it means any assets that would be subject to the probate process after the recipient passes. That may include bank accounts, real estate, vehicles, or other real property.

In some states, recovery may be made from assets that are not subject to probate: jointly owned bank accounts between spouses, payable on death bank accounts, real estate owned in joint tenancy with right of survivorship, living trusts and any assets a Medicaid recipient has an interest in.

An estate planning attorney will know what assets Medicaid can use for recovery and how to protect the family from being financially devastated.

While it is true that Medicaid can’t take your home or assets before the recipient passes, it is legal for Medicaid to place a lien on the property. Let’s say your mother needs to move into a nursing home. Medicaid could place a lien on the property. If she dies and you inherit the home, you’ll have to satisfy the lien before you can sell the home.

Heirs need to anticipate inheriting a smaller estate. Medicaid eligibility assumes that recipients are low income or have few assets to pay for long term care. However, if parents are able to leave some amount of assets to their children, the recovery program will shrink those assets.

Strategic planning can be done in advance by the individual who may need Medicaid in the future. One way to do this is to purchase long-term care insurance, which is the strategy of personal responsibility. Another is removing assets from the probate process. Married couples can make that sure all assets are owned jointly with right of survivorship, or to purchase an annuity that transfers to the surviving spouse, when the other spouse passes away. An estate planning attorney can help create a Medicaid Asset Protection Trust, which may remove assets from being counted for eligibility.

Speak with an estate planning attorney to learn how to prepare for yourself or your parent’s future needs. The earlier the planning begins, the better chances of successfully protecting the family.

Reference: kake.com (Feb. 6, 2021) “What is Medicaid Estate Recovery?”