Long-term care involves not only a loss of personal autonomy; it also comes at a tremendous financial price. Proper planning can help your family prepare for the financial toll and protect assets for future generations.
Long-term care can be very expensive, especially around-the-clock nursing home care. Most people end up paying for nursing home care out of their savings until they run out, at which point they can qualify for MassHealth to pick up the cost.
MassHealth rules require that recipients have no more than $2,000 in “countable” assets (the figure may be somewhat higher in some states) and limited income. Any excess assets need to be spent down before you can qualify for MassHealth. In addition, in order to be eligible for MassHealth, you cannot have recently transferred assets. If you transfer assets within five years of applying for MassHealth, you may be subject to a penalty period during which you cannot receive benefits. After you die, MassHealth also has the right to recover from your estate, which in the case of a MassHealth recipient usually means only the house.
Careful planning in advance can help protect your estate for your spouse or children. If you make a plan before you need long-term care, you may have the luxury of distributing or protecting your assets in advance. This way, when you do need long-term care, you will quickly qualify for MassHealth benefits. The following are some tools that can be used in an estate plan to prepare for MassHealth:
- Trusts. One of most important estate planning tools you can use is an “irrevocable” trust — a trust that cannot be changed after it has been created. In most cases, this type of trust is drafted so that the income is payable to you (the person establishing the trust, called the “grantor”) for life, and the principal cannot be applied to benefit you or your spouse. At your death the principal is paid to your heirs. This way, the funds in the trust are protected and you can use the income for your living expenses. For MassHealth purposes, the principal in such trusts is not counted as a resource, provided the trustee cannot pay it to you or your spouse for either of your benefits. However, if you do move to a nursing home, the trust income will have to go to the nursing home. And to avoid MassHealth’s “look-back period,” the trust must be funded at least five years before applying for benefits.
- Annuities. Annuities are another tool married couples can use when a MassHealth application is imminent. An immediate annuity, in its simplest form, is a contract with an insurance company under which the policyholder pays a certain lump sum of money to the insurer and the insurer sends the policyholder a monthly check for the rest of his or her life. In most states, the purchase of an annuity is not considered to be a transfer for purposes of eligibility for MassHealth but is instead the purchase of an investment. It transforms otherwise countable assets into a non-countable income stream. As long as the income is in the name of the spouse who is not in the nursing home, it’s considered non-countable.
- Protecting your home. After a MassHealth recipient dies, the state must attempt to recoup from his or her estate whatever benefits it paid for the recipient’s care. This is called “estate recovery.” For most MassHealth recipients, their house is the only asset available, but there are steps you can take to protect your home. Putting your house in a trust can be a good option, but once a house is placed in an irrevocable trust, you cannot remove it. .
Talk to your attorney about whether your estate plan should include preparation for possible MassHealth eligibility.