MEDICAID PLANNING IN

ILLINOIS

Why It’s Important

CURTIS J. FORD ILLINOIS ATTORNEY

If You are Nearing Retirement Age, One Addition You Should Consider to Your Estate Plan Is Medicaid Planning

Medicaid Planning – Why It’s Important www.nashbeanford.com 2

A comprehensive estate plan

should accomplish much more than

simply providing a roadmap for the

distribution of your estate assets

when you die. The components

you choose to include in your

estate plan will, of course, depend on your unique goals and objectives. If

you are nearing retirement age, one addition you should consider to your

estate plan is Medicaid planning. People frequently make the mistake of

assuming they have no need for Medicaid benefits and, therefore, do not

need to include Medicaid planning in their estate plan. Before you make

the mistake of making that assumption, consider the following information

relating to long-term care and Medicaid eligibility.

YOUR GOLDEN YEARS BY THE NUMBERS

Your chance of becoming disabled to the extent that you need long-term

care goes up with each passing year. As the average life expectancy of an

American continues to rise, so do the odds that you will need long-term

care at some point during your golden years. Consider the following

statistics:

There were 9 million people over the age of 65 who needed long-

term care in 2012.

12 million people over the age of 65 are expected to need long-

term care by in the year 2020.

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40 percent of people who reach age 65 will go on to need long-

term care at some point in their lives.

75 percent of people who live to age 85 will need long-term care at

some point.

40 percent of the elderly who need long-term care have income at

or below 150 percent of the federal poverty level.

49 percent of nursing home costs were covered by Medicaid in

2002.

Just 7.5 percent of nursing home costs were paid by private

insurance in 2002.

The average length of stay in a nursing home is about 2.5 years.

Median annual cost of assisted living in Illinois for 2013 was

$48,600.

Median annual cost of a semi-private nursing home in Illinois for

2013 was $62,050.

LONG-TERM CARE COSTS

It should be clear from some of

the figures above that everyone

should plan for the costs

associated with long-term care. If

you are married, the odds are

extremely good that one (or

both) of you will need long-term

care at some point. What many

people do not realize until it is too late is that the vast majority of private

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health insurance policies do not cover costs associated with long-term care.

Moreover, Medicare does not cover those costs either except in very limited

circumstances and then only for a short period of time. Long-term care

insurance is available but is typically cost-prohibitive for the average

person. The good news is that the Medicaid program does cover long-term

care costs if you are eligible for benefits. The key to ensuring that your

long-term care costs are covered, therefore, may be in found in the

Medicaid planning you include in your estate plan.

QUALIFYING FOR MEDICAID

People frequently confuse Medicare and Medicaid. Medicare is a federal

entitlement program. An entitlement program, as the term implies, is a

program that you are automatically entitled to for some reason. In the case

of Medicare, you are entitled to benefits because either you or your spouse

(or both) paid into the program during your working years. Medicaid, on

the other hand, is a “means” program, meaning that you must be eligible

for benefits based on a number of factors. Although Medicaid is primarily

funded by the federal government it is administered at the state level.

Therefore, both the eligibility criteria and the benefits offered can vary

somewhat by state. In all states, however, your income and resources

must fall below a designated limit to be eligible for benefits. For many

seniors, the income limit does not present a problem but the resources

limit can be a bar to eligibility.

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Illinois uses a community

standard income level,

meaning that your income

needs to be at, or below,

150 percent of the federal

poverty level for your

area. Certain types of

income are exempt such as SSI benefits and the first $25 of money from

any source each month. If your income exceeds that limit you will have to

“spend-down” before being eligible for benefits. Essentially this means you

will need to incur a specific amount in medical bills first and then Medicaid

will start covering your costs.

The resources, or asset, limit is where most seniors have a problem. The

asset limit for an applicant who is applying based on age or disability is

only $2,000. As with the income limit, certain assets are exempt such as

the family home if the spouse continues to reside in the home, up to a

certain value in an automobile and household furnishings. If your assets

exceed the limit you will have to “spend-down” to be eligible for Medicaid

benefits.

Imagine that you worked hard all your life, saved consistently and invested

wisely to provide a nest egg for your golden years only to find out that

your nest egg will make you ineligible for benefits needed to pay for the

costs of long-term care. Worse still your only option is to pay out of pocket

until you have exhausted your savings at which point Medicaid will begin

paying. Unfortunately, scenarios such as this one play out all over the

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country every day because people didn’t consider the need to qualify for

Medicaid ahead of time and, therefore, did not include Medicaid planning in

their estate plan.

MEDICAID PLANNING

Now that the likely need for Medicaid benefits is clear, and the potential

problem qualifying for those benefits is equally clear, it’s time to discuss

the solution. First, the

Medicaid “look-back” period

needs to be understood.

Many people, when faced

with the Medicaid asset limit,

start transferring assets out

of their name to loved ones

to lower the value of their

countable resources.

Unfortunately, this won’t work. Medicaid has a five year “look-back” period

that essentially “looks back” five years for any transfers of assets you have

made. Usually, if a transfer occurred during the look-back period the value

of the asset that was transferred is imputed to as if you had never made

the transfer. This is why Medicaid planning is so important. The earlier you

begin the better your chances of qualifying for Medicaid benefits when the

time comes. There are numerous legal strategies that can be used to

transfer and protect assets in anticipation of applying for Medicaid in the

future. While starting years ahead of time is ideal, there are some options

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than may be available should you suddenly need Medicaid benefits and you

did not plan ahead. For example, you may be able to turn non-exempt

assets into exempt assets. Imagine that you still owe $50,000 on your

family home. Also imagine that you have $50,000 in a savings account.

The $50,000 in your savings account is not exempt and would have to be

spent-down before Medicaid benefits are available; however, you may be

able to use the $50,000 to pay off your mortgage and turn the funds into

an exempt asset, thereby eliminating the spend-down requirement.

While Medicaid planning is legal there are many “strategies” advertised

that sound too good to be true because they are too good to be true. If

you wish to include Medicaid planning in your overall estate plan, or

suddenly find that you need Medicaid benefits but your assets exceed the

limit, consult with an experienced and reputable Illinois estate planning

attorney to determine what your legal options are.

REFERENCES

Genworth, Illinois Cost of Care Survey

Illinois Department of Healthcare and Family Services, Long Term Care

Illinois Department of Healthcare and Family Services, Long Term Services

and Information for Couples

Illinois Legal Aid, Disabilities Guidebook: Medicaid

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About the Author

Robert N. Nash

Robert N. Nash is a partner in the law firm of Nash Nash Bean & Ford, LLP. The law firm has

offices in Geneseo and Moline, Illinois and conference facilities available throughout

Northwestern Illinois. Mr. Nash chose the estate and business planning arena because he

believes it provides a positive force in his clients’ lives. He practices preventative, rather

than remedial law. Robert Nash focuses on all aspects of estate planning, including estate,

gift and income taxes, trust and probate administration, real estate, and business.

Nash Nash Bean & Ford, LLP www.nashbeanford.com

Geneseo

445 US Highway 6 East

Geneseo, IL 61254

Phone: (309) 944-2188

Fax: (309) 944-3960

Moline

5030 38th Avenue, Suite 2

Moline, IL 61265

Phone: (309) 762-9368

Fax: (309) 944-3960