What is Medicaid planning?

Long-term care costs often blindside those in retirement. Because of this, many turn to Medicaid to alleviate some of the financial burden of long-term care. Medicaid is a government health care program that can help with paying costly care expenses. However, Medicaid is a needs-based program that only applies to people with a limited amount of assets.

Because the qualification requirements for Medicaid are complicated, many individuals and couples begin to make financial plans to qualify for Medicaid years before they need it. This process is sometimes referred to as "Medicaid planning".

Why you should plan

Medicaid planning can help you get the care that you need in your later years and protect your retirement savings from dwindling due to healthcare costs. You may feel that your wallet can withstand any unforeseen medical costs. However, with increasing life expectancy and rising healthcare costs, this is not often the case. The average cost of residing in a nursing home facility is $160,884 per year for the Long Island Region. Even if you are able to stomach these costs, paying for these facilities can take a substantial chunk out of your assets.

When you should plan

When it comes to preparing for long-term care, beginning the process sooner can help better protect your assets and your future health. When Medicaid reviews your finances for eligibility, they look at the previous five years up to your application date. This five-year period is called the look-back period.

If you did not meet the financial requirements for this consecutive five-year period, you will incur penalties. While some short-term strategies--like spousal transfers and annuities--help reduce these penalties, it is better to plan ahead and utilize long-term strategies to qualify for Medicaid without penalty.

How you should plan

One of the most common Medicaid planning strategies is forming a trust. A trust is a financial tool that allows a third party to hold assets intended for a beneficiary. You can form a trust for both assets and for income. Placing assets and income into a trust can keep them from counting towards your total assets when applying for Medicaid.

When it comes to Medicaid planning, there are many options and considerations. As with any large financial decision, you should work with an experienced professional to fully understand the process.

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