If your parents face age or health issues that will eventually require them to live in a nursing home, how will they pay for this care? Few people have the personal resources to cover the costs of long-term nursing home care. Consequently, most rely on Medicaid to pay for these costs.
This means that your parent(s) must qualify for Medicaid assistance. As U.S. News reports, these qualifications include a highly restrictive net worth amount. For an individual, this means owning no more than $2,000 worth of assets. For a married couple, the amount increases to only $4,000. The value of your parents’ assets undoubtedly exceed that amount. So what should they do? Many people do a Medicaid spend-down.
How a spend-down works
The purpose of a spend-down is to “impoverish” your parents so they will qualify for Medicaid. This represents a perfectly legal strategy, but you and they need to be very careful about the ways in which you go about accomplishing it. In most situations, establishing an irrevocable trust becomes the best option.
Your parents place their assets into the trust, at which point the trust owns them instead of your parents owning them outright. This effectively leaves them with no assets of their own, thereby fitting within Medicaid’s eligibility requirements. Unfortunately, however, it also leaves them in the position of relying on the trust’s trustee to provide for them. This is why they need to carefully consider who they designate.
How the government verifies eligibility
If setting up an irrevocable trust sounds like a good idea to you and your parents, they and their attorney should do it as soon as possible. Why? Because whenever they ultimately apply for Medicaid assistance, the government has a five-year look-back period. This means that Medicaid officials can and almost certainly will review all of the financial documents your parents signed during the preceding five years. If they find anything within this period that looks like deliberate impoverishment, they will deny your parents’ Medicaid application.