Hi, I’m Alex Thompson, Benefits Planner for Krause Financial Services. Today, I’m going to talk about pre-planning vs. crisis planning and where your client fits.
There are two ways to plan for Medicaid eligibility: pre-planning and crisis planning.
Pre-planning happens before a person needs care; they are healthy and around retirement age. This is always the best planning strategy, as your client will have more options to preserve their assets for the future.
Many elder law attorneys use estate planning when helping their clients conduct pre-planning for long-term care. This kind of strategy often uses an irrevocable trust where clients will transfer ownership of all non-qualified assets into the trust.
This strategy is successful once the five-year lookback period has passed. Should your client need long-term care after the five-year lookback period, all assets transferred into the trust will be protected and not countable for Medicaid purposes.
This would also be a good option if your client does not fall in pre-planning nor crisis planning in that they are no longer able to purchase a long-term care policy but are still in good health. If they can wait out the five-year lookback period, they may then be able to receive benefits.
Your client would then be able to qualify for Medicaid with ease, as most of the spend-down has already occurred. Additionally, when the client passes away, they will have a solid estate plan in place.
The most common form of pre-planning is the purchase of Long-Term Care Insurance. If an individual purchases the policy when they are young and healthy, the insurance company offering the policy assumes much of the risk, typically making the policy very affordable.
However, as age increases and health declines, policy costs will continue to rise until the point where the individual is no longer insurable. That’s why Long-Term Care Insurance is not an option for those already in need of long-term care and why it’s best for individuals engaging in pre-planning.
In some cases, the individual will purchase five years’ worth of Long-Term Care Insurance coverage, with the intention of qualifying for Medicaid after the five-year lookback period. In other cases, Medicaid might not be necessary at all, as private insurance will cover all expenses.
Crisis planning occurs when someone needs immediate long-term care or is currently residing in a long-term care facility but is feeling the financial constraint of paying for the services. The client either never previously engaged in any pre-planning strategies, or the pre-planning strategies did not work as planned.
There are various crisis planning strategies, the use of which are dependent upon the client’s assets, income, and marital status.
A married couple, for example, may have more crisis planning options available, as they are allowed to keep much more in countable assets than a single individual. These strategies involve spending down countable resources to financially qualify for Medicaid benefits to assist with long-term care costs.
At Krause Financial Services, we utilize a Medicaid Compliant Annuity, or MCA. In most of our crisis planning, an MCA irrevocably turns countable assets into an income stream and is appropriate both in married couple and single person situations. To see these kinds of plans in action, watch our Case Study videos in the Access Series.
Other tools that can be used to spend down your client’s assets are premium whole life insurance policies and funeral expense trusts.
Your client could also improve exempt assets such as making improvements on their home, purchasing a new vehicle to replace their old one, or purchasing additional personal items.
Even if your client is in a nursing home, it is never too late to try and preserve some of their assets. Though pre-planning is always the best option, we understand many clients don’t realize the value in any type of planning until they are immediately facing the financial burden that is long-term care.
If you’d like to learn more about your client’s options when working towards Medicaid eligibility, contact our office at 855-552-5893 to speak with a Benefits Planner.
I’m Alex Thompson, and thanks for watching.