If you are beginning to think about your future and the possibility of eventual nursing home care, you are probably also thinking about Medicaid and its connection to nursing home eligibility.
You want your assets to go to your heirs rather than spending down to meet Medicaid requirements. This is where an irrevocable trust can help by turning countable into noncountable assets.
Countable versus noncountable
Medicaid bases eligibility for nursing home care on income. To qualify, you must have less than $2,349 in monthly income and $2,000 or less in countable assets. These include the money in your bank accounts and certificates of deposit, stocks and bonds, real property that is not for rent, vehicles and life insurance policies worth more than $2,500.
Noncountable assets include items such as personal property such as furniture or jewelry, pre-paid funeral and burial expenses, your primary residence and any rental properties you own plus assets you made a good faith attempt to sell but could not.
Note that although rental property is generally noncountable, there may be exceptions, and income from rental property does count toward the income limit. Although your 401(k) is a noncountable asset, any payouts you receive will count toward your income in the eyes of Medicaid.
An irrevocable living trust
One way to qualify for the Medicaid program and nursing home acceptance is to put your assets into an irrevocable trust where they fall into the noncountable category. You will no longer have access to those assets, so you must take care in appointing a trustee you can rely on to faithfully execute his or her responsibilities.
Medicaid enforces a five-year look-back period to verify that you have not sold assets under fair market value during those five years. As long as you do not need nursing home services within that time, you will not incur any penalties or experience a delay in eligibility for long-term care.
Medicare Estate Recovery Program
If you become a nursing home resident, then upon your death Medicaid can go about recovering the funds the agency spent for your care. If you established an irrevocable trust, the trust takes ownership of your assets. Medicaid estate recovery does not apply because your estate did not own those assets, and they are not subject to probate.