If your long-term care plan involves throwing yourself at the mercy of Medicaid, you might want to start planning for that eventuality soon.
Medicaid is the federal program that pays for long-term care for those who are too indigent to pay for it themselves. While it is a national plan, many aspects of it are administered by the states and because of that, some of the rules differ from place to place, increasing the complexity. But the bottom line is that before the government will pay for your long-term care, you must impoverish yourself -- a retirement nightmare for many.
Terence O'Malley, an elder law attorney based in Kansas City, Missouri, deals often with families facing a long-term care crisis. He says that long-term care planning that relies on the prospect of getting help from Medicaid isn't easy. "The rules of Medicaid are so arcane. You have to navigate a murky future of known unknowns," he says.
O'Malley's business includes helping families structure their finances in advance to protect the spouse and other family members who can get sucked into the Medicaid-driven financial crisis. He says that anyone planning to incorporate Medicaid into their retirement planning budget must contemplate unpleasant scenarios. "Pre-planning frequently requires retitling assets in an irrevocable trust, and the client will lose control of them. Once you set up the trust, you can’t change your mind later. If you do it incorrectly, your actions can be viewed as fraud. It's fraught with pitfalls," he says.
O'Malley says the right time to consider government-financed long-term care, especially if you are in the financial middle -- not penniless, but uninsured and unable to write a big check -- is at least five years before the crisis is likely to hit. That's because Medicaid will look back five years from the date you apply for Medicaid to see if you gave away assets for less than fair market value. If you did, then you'll be forced to wait out a penalty period.
He recommends getting an attorney's help to devise a plan that utilizes all available government resources, including the Veterans Administration and Medicaid, before the government's 60-month financial look-back period complicates the issues.
O'Malley says some people balk at the cost of an attorney's help, but he says the cost is rarely exorbitant. "The cost of setting up a plan is usually well below the cost of one month in the nursing home, and you'll save yourself a boatload of money down the road," he says.