Your Federal Government has mandated (as of June 30, 2006) that before you qualify for nursing home care (Medicaid Assistance), you must spend down all of your assets. These restrictive new rules are designed to impoverish the healthy spouse. There is a mandated 5-year look-back, which means you better have done something to protect your assets 5 years before you become sick (apply for Medicaid Assistance).

Without careful attention, your accumulated wealth can disappear right before your eyes, very quickly if you are unlucky with your health. If either you or your spouse gets sick, before you can ask for any government assistance, you must spend all of your accumulated wealth, leaving your healthy spouse without any resources to keep on living the lifestyle you and your spouse are normally accustomed to.

According to Genworth’s Cost of Care Survey, a private room in a nursing home costs $290 per day or $8,821 per month. Semi-private rooms are more affordable, though they average $255 per day or $7,756 per month. That is $105,852 a year for a private room and $93,072 for a semi-private room. YIKES!!!

Good health, although very important and a blessing, cannot be relied upon to maintain your financial freedom. We all know no one can predict the future. But you can do something about this now to ensure that your wealth is protected and to limit how much the government can expect you to pay for nursing home care. There is a way to insulate your assets from the federal nursing home mandated spend-down. So what is the secret, you ask? Simple. It's called an irrevocable trust. Make sure you do not set up a revocable or living trust. These trusts will NOT shelter your assets.

So what is an irrevocable trust? An irrevocable trust repositions your assets to allow you control and to limit the amount that can be demanded of the nursing home spend-down mandate, which will reduce your hard-earned wealth. Assets that qualify for repositioning are your primary residence, a vacation home, your CDs, stocks, bonds, retirement, and other investments.

By “repositioning your assets” (transferring your assets) to an irrevocable trust you legally no longer own the assets, therefore no one can demand or sue you for those assets. Even more important, if you no longer own your assets you don’t qualify for the expensive probate process and you do not have to pay estate taxes. Moreover, if you have a will, “your will” will not protect your assets from the nursing home spend-down, it will not avoid probate, and it will not avoid taxes on your estate. So, in essence, an irrevocable trust is ideal for many reasons.

There are pros and cons to using an irrevocable trust as part of your Medicaid plan. For one, they can be a risky venture. As much as you believe the person you assign as a trustee will manage the assets in your best interests, there is nothing to stop that person from spending down the funds for their own gain. You need to be confident about your decision because you will not have legal recourse in the event that occurs.

Beyond converting your countable assets to non-countable assets, there are other benefits to having an irrevocable trust. This relates to estate planning. Upon your death, Medicaid reserves the right to recover funds they paid on your behalf. They can go after your remaining assets, even assets that were not initially countable, like your house.

However, your state cannot recover from the estate if you are survived by a spouse, have a child under age 21, or have a blind or disabled child of any age. When your spouse dies, so long as you do not have children who meet the criteria above, the state can go after your estate.

An irrevocable trust can also protect your assets against Medicaid Estate Recovery. Assets in an irrevocable trust are not owned in your name, and therefore, are not part of the probated estate. When you or your spouse (if they are part of the trust) pass away, any assets put into an irrevocable trust are not included in the estate for the calculation of Medicaid recovery, the estate tax, or probate.

A solid, personally developed, and well-planned irrevocable trust by a team of competent professionals including accountants, lawyers, and financial planners can avoid these unpleasant financial circumstances. It can literally save you and your family a fortune and your life savings.


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