Retirement Planning Tip of the Month:

March 2006

Controlling the Uncontrollable Events During Your Retirement (continued)

In a prior Retirement Planning Tip, we emphasized the need for retirees to investigate long-term preventive measures to protect their families from financial ruin due to a catastrophic illness.  One of the key questions is:

Are there other ways to protect my financial security besides additional insurance?

A colleague who practices elder care law offers the following suggestion:

“In order to tailor a Medicaid plan to each individual or couple, it is necessary to strike a balance between control and protection.  In other words, how much direct control is the client willing to give up over his assets?  The more direct control that a person is willing to give up; the more protection can be afforded to his assets. 

As an example of balancing control against protection, the use of a life estate for real estate (if created early enough) can protect the real estate from the Medicaid requirement that it be sold, and the proceeds used to pay for the cost of long-term care.  A life estate is a person’s right to exclusive use, possession, and enjoyment of real estate during his life.  Upon his death, title to the real estate transfers to whomever has been named as the remainder holder(s).  This transfer occurs by operation of law and is free and clear of any claims by Medicaid.  However, use of a life estate means that you no longer have absolute control over your real estate.  If you want to sell the real estate, refinance the mortgage, or take a home equity loan to make improvements, the remainder holder(s) have to agree to the transaction. 

Another example is the use of irrevocable trusts.  When assets are titled in the name of an irrevocable trust, the terms of the trust agreement control how and when the assets will come out of the trust.  Hence, the creator of the trust cannot later change his mind and pull the assets out of the trust.  The trust can still benefit the creator (e.g., pay all income to the creator), but to the extent that the trust can or does benefit the creator, Medicaid will attribute that benefit to the creator when determining if he qualifies for benefits.  It should be noted that (in most cases) it is desirable to have created and funded the trust at least five years prior to filing a Medicaid application.  Otherwise, the trust assets could be unavailable to pay for the cost of care and Medicaid could also refuse to pay for the cost of care. 

These are just a few examples of long term Medicaid planning.  In order to fully explore your options, you should consult with a qualified elder law attorney.

Next month, we will offer some answers to protection alternatives. 

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