Many people falsely assume that Medicare will protect them from these expenses.  Medicare will not pay for a long-term nursing home stay or any portion of your nursing home costs beyond your first 100 days at the facility.

LTC insurance can protect your assets from LTC expenses.  Depending upon your age, health status and other factors, you may not qualify for LTC insurance or you may qualify but be unable to afford the premium for adequate coverage.  

For those people for whom LTC insurance is not an option, many will rely upon the Medicaid program to pay for their LTC expenses once their assets are depleted.  In order to qualify for nursing home benefits under the Medicaid program in Massachusetts, an individual cannot have more than $2,000.00 in countable assets. 

“Countable assets” include virtually everything that you own including cash, CD’s, stocks, bonds, savings, annuities, retirement accounts, cash value of life insurance, vacation homes, rental real estate, and other assets. 

The major noncountable asset is your home.  You can qualify for Medicaid and retain your home during your lifetime.  However, after your death, Medicaid will seek to recover the funds spent on your care.  Because your home is the only asset left, it will be taken by the state to pay the Medicaid debt.

To protect the family home, vacation home, or other important assets from being subject to the Medicaid “spend-down” and recovery laws, many single and married senior homeowners are incorporating an Income-only Irrevocable Medicaid Trust (Medicaid Trust) into their estate plans.

With a Medicaid Trust, you retain the right only to the trust’s income during your lifetime and irrevocably waive any right to receive the principal back from the trust.  However, the trust principal isn’t necessarily “locked up” during your lifetime because the Trustee may distribute principal to your children, grandchildren or other specified family members. 

Only the trust’s income would be at risk to pay for your LTC expenses.  The assets in the trust are fully protected under the Medicaid laws after the five-year look-back discussed below.

Other Advantages of a Properly-Prepared Medicaid Trust

• The trust assets are not subject to probate.

• You retain the ability to change the ultimate beneficiaries of the trust.

• The trust assets are not subject to the claims of your children’s creditors or your children’s divorcing spouses during your lifetime.

• By serving as Trustee of the trust, you retain overall control over the trust’s affairs until you die or become incapacitated.

• The Trustee of the trust can sell your residence and exclude the capital gain subject to the limits of Section 121 of the Internal Revenue Code[1], and purchase a replacement residence on your behalf and/or invest the sale proceeds in an income-producing asset and distribute the income to you.

A Five-Year Planning Horizon Is Essential

A Medicaid Trust can protect your assets but only after expiration of the five-year look-back period, which begins when you deed your home or transfer other assets to the trust. 

The look-back period simply means that if you apply for Medicaid within five years after you transfer assets to a Medicaid Trust, you have to disclose the transfer to the government and you will be denied coverage under the program for a length of time known as the “disqualification period”. 

The calculation of the disqualification period is based upon the value of your property at the time of its transfer to the Medicaid Trust and other factors.  In order to avoid this trap, you should not apply for Medicaid until the five-year look back period has run its course.

As you now know, procrastination with regard to LTC planning can lead to financial devastation in which virtually all of your income and all of your assets are paid to the nursing home or taken by the state after your death, leaving your children or other loved ones with nothing.

We are knowledgeable about the planning opportunities as well as the potential pitfalls in this area of the law and would be happy to assist you with your estate planning needs.

Request a Free DVD or CD on Medicaid Trusts

During this informative program, we cover the most frequently asked questions about this type of planning including the following:

• Why is a Medicaid Trust the best way to protect a family home from a catastrophic nursing home stay?

• Who is a good candidate for this type of trust?

• How does the trust protect your right to live in your home while keeping you in a position of control over this important asset?

• Why has advance planning become absolutely crucial in this area of the law?

The information contained in this program will help you make an educated decision whether to include a Medicaid Trust in your estate plan. 

To watch this program or obtain your free copy of the informational DVD or CD, please go to our Resources section and select the Estate Planning Information Center link.

[1] Section 121 excludes capital gains of up to $250,000.00 on the sale of a primary residence for single taxpayers (and $500,000.00 in the case of married taxpayers who file jointly) in which the taxpayer and his or her spouse, if applicable, occupied the house as his, her or their primary residence for at least two of the five years before the sale and owned the house for at least two of the five years before the sale.  You are still considered to be the “owner” of the residence under these rules even after you have transferred your home to a properly structured Medicaid Trust.

The Secretary of the Commonwealth of Massachusetts has issued a warning on its website about an entity called, “Massachusetts Corporate Compliance,” which has mailed solicitations to numerous Massachusetts corporations offering to complete corporate meeting minutes on behalf of the corporation for a fee.  The solicitations imply that such filing of the minutes is required under Massachusetts law when in fact it is not.  If you have received any communication from this entity please call me before contacting this entity.

The following are the annual filing requirements with the Secretary of the Commonwealth of Massachusetts for corporations and limited liability companies:

• Corporations (Domestic and Foreign) - must file an annual report within 2½ months after the close of a corporation’s fiscal year.  Waiting to file the report until the corporation’s tax returns are filed could result in a late filing and additional filing fees with the Secretary.  The Secretary has a form on which the report is to be filed on.  The fee for this annual report is $125.00, while if it is done electronically the fee is $100.00.  The fee for untimely filings is $150.00.  Minutes are not required to be filed.

• Limited Liability Companies - must file an annual report on or before the anniversary of the filing of the original certificate of organization.  Waiting to file the report until the corporation’s tax returns are filed could thus result in a late filing and additional filing fees with the Secretary. There is no set form for the report, but it must contain all of the information included in the original certificate, and most reports typically follow the same format.  The fee for this annual report is $500.00.    

It is vital that all the formalities of corporations and limited liability companies are observed, since failure to observe these formalities could result in additional fees and fines, involuntary dissolution of the corporation and potential personal liability to shareholders.  Alexandrov, Metzger & Flannagan can create and maintain business entities so as to avoid any of these pitfalls.  We would be glad to discuss these services with you. 

Please call us if you are interested or have any questions.

Posted by: Chris Metzger

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