TRANSCRIPT 🔗
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Welcome to Financial Opportunities Uncovered, brought to you by Keeler and Adler Family Wealth.
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Today we're talking Medicaid planning with Maggie Sutton, a certified elder law attorney.
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Welcome, Maggie.
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Thank you.
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Thank you for having me.
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You know, I stress the term certified elder law attorney.
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There are probably 16,000 attorneys in Central Ohio, and some are more than happy to help you contract, you know, buy a business, look at your son's rental agreement, handle your divorce, handle your estate plan.
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You are a certified elder law attorney, so what is your specialty?
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Like what are the things that you really concentrate on?
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Sure.
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So being a certified elder law attorney, we have to have a rigorous uh background.
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We have to be uh well-versed in all areas of elder law.
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The certification comes from the National Elder Law Foundation.
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Um you have to pass a very rigorous exam.
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It's about a six-hour exam constituting both multiple choice and essays, and it covers a wide variety of topics, but all of them to some degree relate to elder law.
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And elder law would be estate planning, probate, estate planning, probate, uh, Medicaid eligibility or planning, special needs planning, public benefits law, a little bit of Medicare, the American with Disabilities Act.
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Um, so anything that could touch on older individuals, including like elder abuse, um things like that.
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Interesting.
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Okay.
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So, you know, one of the questions we get from clients, sometimes children of elderly clients that are maybe in a downward health health decline, is you know, should we be looking for ways to qualify for Medicaid?
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And again, for listeners, there's Medicare, which is part of, you know, sort of bolted onto Social Security, and that's a more or less a health insurance plan.
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And then there's Medicaid for people that don't have the means to pay for things in uh retirement.
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Um, from your experience, like what is the sweet spot for people that should be considering it or not considering it?
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So from my experience, I've been doing this about 15 years.
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We find that clients with about two to two and a half million dollars of net worth assets aren't necessarily interested in implementing strategies that would be I'll say net I'll say necessary, but that could be implemented to qualify for Medicaid.
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So two to two and a half million or more than assets.
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Correct.
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They're more or less like I'll self-insure, I'll you know, take the risk, and with that gives them the flexibility later on when they do need care to pick the facilities and not have limitations.
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So two to two and a half million and under are the folks that maybe want to consider it, and and probably the lower that number, yes, the more important it might be for them to look at it.
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Correct.
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And there are some clients that it's like it's just necessary, right?
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They've run out of funds and they have to qualify.
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Um, but we we do a lot of strategic planning to get people eligible to protect assets.
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And we protect them for a various for various reasons.
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Um, we protect them for a healthy spouse who may be younger than the individual who is needing the long-term care.
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We protect assets for disabled children, like disabled adult children.
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We protect assets for inheritance purposes.
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That isn't necessarily our primary reason for doing it, um, but we do have clients that that is what they want to do, and we follow all the rules, and there are ways that we're able to implement that.
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So, you know, there's this people that have looked into Medicaid planning or Medicaid at all understand that there's this concept of spending down assets.
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And if somebody has the intent to leave money to their children or grandchildren, their concern is they're they have to spend down a certain amount of their assets in order to qualify for the Medicaid to kick in and pay.
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So, can you talk a little bit about the difference between the income component and the asset component?
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It's very complicated and it's hard for me to get my head around.
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Sure.
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And it gets exponentially more complicated as you get into it.
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So, high level, the difference between income and assets.
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Income are everything like social security, um, required minimum distributions from retirement accounts, pensions, uh payments from annuities, anything that is received on a monthly basis, or something again like an RMD that somebody might receive quarterly, might take annually, but something that is a source of payment that is received on a regular basis.
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And all four of those that you mentioned, there's no flexibility.
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If you if
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you're getting social security, you're getting social security.
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If you have to take a required minimum distribution, you have to take it.
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Pensions, you can't generally shut them off.
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So that income, those four at least, components of income, you really have no ability to manipulate.
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Okay.
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Correct.
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And generally speaking, when it comes to Medicaid eligibility, and and I'm talking about the long-term care piece, because Medicaid program in and of itself is a large program, right?
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Low income, disappear disabled people, pregnant women, children, my focus is on the long-term care piece.
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It's for the elderly folks.
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Correct.
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And each of those programs has their own asset and or income limitation.
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Gotcha.
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So what I'm about to talk about in the terms of dollar amounts is very specific to the long-term care piece.
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So when it comes to income, there is an income cap.
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Uh, it's called the special income level.
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Right now it is$2,982, which sounds like a very specific number, but it is always three times the amount of the SSI maximum benefit.
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And that's per month.
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And that is per month.
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So right now the SSI maximum benefit is$994.
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So individuals who are disabled with low assets could potentially qualify for SSI and get up to$994 a month of income.
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Multiply that by three, you get the$29.82 as our income limit, and that is gross monthly income.
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If you're below that threshold, no issues being considered income eligible for Medicaid.
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Correct.
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If you're over that limit, you have to put in place what's called a qualified income trust, also known as a Miller trust.
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And the long and the short of how these work, it is a separate trust bank account where the individual's income it gets deposited into their current checking account.
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The amount of their income over the$29.82 limit has to be transferred into this bank account, this QIT bank account, and from that account it gets paid out towards their care.
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More or less what you're saying is anything over that, was it$29.82?
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$29.29.
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Anything over that gets deposited into the segregated account, but that has to go towards care first before they qualify.
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It does it every month.
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So when a person gets on Medicaid, Job and Family Services calculates what's called a patient liability.
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How much of their monthly income do they have to contribute towards their care?
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And then Medicaid picks up the difference between the Medicaid reimbursement rate and what their income pays.
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We have a lot of clients who'll come in and say, Well, I've got$6,000 a month of income between Social Security, my RMDs, and pensions.
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There's no way I'll qualify for Medicaid.
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But nursing home costs$10,000 a month.
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And so you've got a$4,000 monthly negative cash flow that starts dipping into your savings, and at some point the savings run out.
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And so you're right, and$6,000 a month doesn't cover a$10,000 nursing home bill.
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So those individuals can still qualify for Medicaid.
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Okay.
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They're going to have a high patient liability.
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Most of that$6,000 has to be paid.
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And the the actual Medicaid benefit might be very small.
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But the benefit is the Medicaid reimbursement rate is going to be something like$7,000 versus the private pay amount of$10.
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So they're going to contribute their six and Medicaid's going to pick up that$1,000 difference.
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So before we talk about the asset limitation on this income component, how does it, how does being married affect that?
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So when they look at eligibility, that$29.82 limit, they are only looking at the spouse that is trying to qualify.
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Oh.
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So a community, we call it a community spouse, the healthy spouse, the one not looking to qualify, they could have$20,000 a month of income, and it's not going to disrupt or disqualify the institutionalized spouse.
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Those are the terms that Medicaid uses.
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Institutionalized spouse, community spouse.
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So how about assets?
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How are those treated?
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Okay.
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So that gets even more complicated.
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There is a difference between an in a single individual or unmarried individual and a married spouse.
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A single individual, that asset limitation is$2,000 of countable assets.
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And I'll go into a little bit the difference between countable and exempt.
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In a married couple situation, the marital unit could have up to about$160,000 of countable assets.
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Is a house countable?
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So what is not?
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The primary residence as long as a spouse is living in it or a dependent relative.
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Okay.
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So a disabled child or just any adult child, grandchild, stepchild, cousin, parent, grandparent, nephew, uncle, any sort of relative that can also considers that their primary residence.
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One vehicle is exempt.
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And in a married couple situation, or even in a single person, it is the vehicle that has the most equity or is worth the most that they exempt.
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And so sometimes if a single person has two cars, if that second car is worth more than$2,000, they will never be eligible.
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Never be eligible.
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Never be eligible as long as they're not.
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So they meet the income.
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Right.
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But they don't meet the assets.
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Not eligible.
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Okay.
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Okay.
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And we'll talk about how you become eligible in that scenario.
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Yes.
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Okay.
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And then real quick, so other things that are one other big thing that's not countable.
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Retirement accounts in payout status.
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Okay.
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Meaning they're taking an RMD or any other regular periodic distribution.
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So and that's actually been a big game changer in the last five years because five years ago, retirement accounts were all considered countable.
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Okay.
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Interesting.
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But now they're not.
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That's that's a biggie.
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It's huge.
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It is huge for this population.
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I said a minute ago, if somebody had assets that exceeded the limit, which disqualified them even though they met the income requirement, there are strategies that you could use to maybe re-jigger the assets, move them around.
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But there's this thing called a five-year look back.
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I think it used to be three years, it's now five.
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So you really need to begin planning, you know, years ahead.
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Can you kind of get into the the look back and get it then get into the meat here?
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And that is, you know, how can you move things around?
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Um perhaps giving up some control of assets, that kind of thing.
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Yeah, so the five-year look back, the concept of it is at the point that a Medicaid application is filed where an individual is seeking eligibility, the county has the right to ask for the historic five years of their financial history.
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And what they're looking for is have the person or their spouse given away money or given away assets and not received fair market value in return?
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So has there been gifting?
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Did you put your house in your kid's name?
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Did you fund an irrevocable trust?
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Did you give your car to your grandchild?
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Did you give large sums of money to your children for a down payment of their house?
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And if you've done any of that in the five years leading up to the filing of a Medicaid application, Medicaid's gonna say, tisk tisk, you gave away money that you or assets that you could have otherwise used to pay for your care.
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You're now asking the government to pay for it.
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We see you're below our threshold, but you got there because you gave away all these assets.
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Okay.
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And then what they do at that point is they put the individual in what we call the penalty box.
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And they say, We are not going to pay for your care for a length of time going forward based on the value that you gifted in the prior five years.
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So there's sort of like recapture of the money that you gave away.
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Correct.
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They sort of credit that to what you could have been using for Medicare or Medicaid.
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And in theory, once that is depleted, you would then be eligible to receive Medicaid reimbursements.
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And just to give you a quick example, what that threshold looks like, it's about$8,600 for every$8,600 that is gifted in the preceding five years.
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So if they had given away$86,000 collectively, they're going to serve a 10-month period.
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Okay.
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The downside is if this is a single individual, for that 10 months to start running, they have to be below the$2,000 accountable resources.
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So then the question is, well, how are they going to pay for their care for the next 10 months?
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So they may have to try to get back some of the money that they gifted, or they can potentially apply for a hardship waiver, but there's criteria you have to meet, like you attempted to get the assets back.
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So we often recommend the use of an irrevocable trust.
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But the
clients are the the essence of that planning is they have to give up ownership and control.
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And that's why you know I talked at the very beginning about that two to two and a half million dollar threshold.
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But our experience tells us that clients with a net worth over that don't want to give up that ownership and control.
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Right.
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And there's only so many things you can put in this trust.
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You can't put you can put retirement accounts if you liquidate them, pay all the taxes, and transfer the proceeds.
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But why would you do that?
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Nobody wants to pay taxes.
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Right.
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Generally speaking.
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But if it's not included.
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Correct.
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Well, I'll get to that in a second.
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Okay.
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I'll get to that in a second because there's a difference.
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It's complicated.
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It gets way complicated, Andy, way complicated.
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Um, so uh you know, I had I had said to you kind of earlier before our filming started that you know you can have you could have$10 million of assets and somebody could theoretically qualify for Medicaid if they wanted to.
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They could put you know that$10 million into an irrevocable trust more than five years in advance, and then they need long-term care, and on paper you show you have nothing.
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Um, but again, clients of that caliber aren't interested in giving up the ownership and control, and there's usually a lot of income tax consequences that come with that.
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Right.
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A lot of capital gain on their investments.
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Um, there could be large retirement portfolios, um, and it's just not from a tax standpoint, it's just not feasible to do that.
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So far, we've been talking about qualifying.
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There's this estate recovery concept.
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And that's where I was going.
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Yeah.
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Yeah.
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So there is a difference between assets being exempt to obtain eligibility and being subject to Medicaid estate recovery when a person passes.
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Okay.
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Generally speaking, what I what we had talked about house, car, retirement, exempt for eligibility, but they all are subject to a state recovery at death.
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So retirement, you say, well, we don't need to liquidate it to preserve it.
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We don't need to liquidate it to qualify.
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But if we pass away with$200,000 in an IRA and the state has paid out$100,000 in long-term care benefits, the state's going to be entitled to reimbursement from the IRA of the first$100,000.
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And and I'll stop here real quick.
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In a way, the estate recovery could completely negate anything you did on the front end.
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And I would imagine most people that have heard water cooler talk about Medicaid planning are not considering I again, I call it recapture.
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Um, that's a term we use a lot in a lot of different aspects of planning.
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But um But that estate recovery piece.
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Yeah, that estate recovery piece, you know, you've qualified and you think, oh, I'm good, and I'm, you know, I'm getting my the benefits that I've paid taxes for or whatever.
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And then lo and behold, after somebody passes away, you know, the kids thought, oh, mom and dad did this Medicaid planning, we're safe.
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There's this recovery concept.
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That's but the recovery is only on what bomb or dad owned at death.
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So if we do this five-year planning, put a chunk of assets into the irrevocable trust.
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That is completely safe.
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Okay.
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It's what mom and dad or or whoever the Medicaid applicant is.
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So they so they, you know, there were certain amount of assets that they could have kept to qualify.
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Correct.
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Those assets, because they were under the limit, they didn't put in an irrevocable trust.
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Those are the ones subject to potentially.
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Okay.
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Potentially.
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With some strategic maneuvering between spouses, you can decrease what the state could actually have recovery against.
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Like let's just take the house, for example.
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Traditionally owned, jointly married couple, husband's gonna qualify for Medicaid.
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We will do everything in our power to get the deed to the house into the wife's name.
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Because if husband gets on Medicaid, so the house is exempt for eligibility, but if husband dies having an ownership in the house, his half interest is gonna be subject to a state recovery.
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But we can transfer his interest to the wife.
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She's the sole owner at his death, she never gets Medicaid during her life, the state has no claim against the house.
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Gotcha.
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And you know, as you're saying all this, something that occurred to me.
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There could certainly be viewers that view this as a sort of moral or ethical conundrum where somebody that's wealthy enough to pay their own way is trying to skirt the rules to, well, the rules are there for a reason.
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And you know, as a financial planner, clients engage us to help them uncover financial opportunities.
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That's the name of our podcast, financial opportunities uncovered.
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Sure.
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Um it's up to the client when we point these things out to decide whether it's the right thing for them to do morally, ethically, financially.
00:20:42.799 --> 00:20:53.440
Um so can you share kind of an example uh that you've had with clients that have kind of gone through this process and maybe what vehicles they've used to implement them?
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Sure.
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Um so one big strategy that we use is the use of a Medicaid compliant annuity.
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And so I'll give you a kind of a quick example with a married couple.
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And it most often comes up in a married couple situation because generally speaking, in these types of situations, we are trying to preserve as much assets for the community spouse, the healthier spouse, so they're not completely destitute, right?
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They need either income or they have their own living expenses or they may need to pay for their own long-term care, and we don't want to make them destitute.
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Um, so I I have an example here, just I'm gonna throw out some numbers and it'll help to kind of illustrate how this works.
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But so let's say we have a married couple, husband and wife, they're in their 80s, husband's health has been declining, and she decides that she needs to place him in a facility.
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So again, their primary residence is gonna be exempt, and we're gonna figure out ways to get the house deeded into her name as sole owner.
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They have two vehicles, one worth$20,000, one worth$10.
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So the$20,000 vehicle is going to be exempt.
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And then let's say they've got checking and savings accounts that have about a$40,000 balance.
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Now we have$50,000 of countable assets.
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And in their scenario, car and the checking and savings.
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Yep.
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Then they've got a CD that has$100,000.
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Cash in the bank, countable asset.
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So now we're at$150.
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Then they've got a brokerage account,$250,000.
00:22:24.000 -->
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Wife has a Roth with$50,000 in it.
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Currently, that is a countable asset because she is not taking any sort of rate.
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So now we have$450,000 of countable assets.
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And they say, I want to get them qualified for Medicaid.
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What do we do here?
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So they have to spend down to that$160.
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So we have$290,000 that we need to spend down.
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She can start taking$50,$100 a month out of her Roth, and that is going to move her$50,000 from the countable to the exempt.
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But now we have$240,000 left to spend down.
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And this is where she can improve the house.
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So home improvements or repairs, anything into the house she wants, that's a permissible spend down.
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We consider her to look into irrevocable prepaid funeral plans.
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You know, everybody's gonna die.
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Might as well prepay it.
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We got a couple bucks we have to spend down.
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Medicaid says you can spend any amount of money on funeral for both husband and wife.
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Any other debt that they want to pay off, credit card, car loans if they had them, mortgage, any other debt they could pay off, and that's a permissible spend down.
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So she still has$240,000 to spend down.
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And she doesn't just want to spend it on care.
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She can purchase a Medicaid compliant annuity.
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She writes a check for$240,000, she sends it off to the annuity company, and then she tells the annuity company how long what the term of that annuity is.
00:24:06.640 --> 00:24:06.960
Okay.
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Um, there are a couple of companies nationally that will do super, super short term, like anything between two months and about three years of those annuities, and they are very specific for this type of planning.
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The term cannot exceed her actuarial life expectancy.
00:24:26.240 --> 00:24:26.480
Okay.
00:24:26.720 --> 00:24:31.519
So if she's 80, Social Security Administration probably says it, let's say seven years.
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The term of that annuity cannot be longer than seven years, but it can be anything shorter.
00:24:37.519 --> 00:24:37.759
Okay.
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And sometimes in these situations, the goal is for her to get as much of that money back, maybe as quickly as possible, for her to keep and be able to use for her own things.
00:24:48.319 --> 00:24:56.480
So we we have done six-month annuities, nine-month annuities, twelve-month annuities on these dollar amounts.
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And now she's getting a check for$10,000,$20,000,$30,000 a month from this annuity.
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But one of the biggest cruxes of this annuity is if she passes away before all of the annuity payments come back, the state of Ohio, to the extent of Medicaid benefits paid out on her husband's behalf, has to be the primary beneficiary on the remaining payments.
00:25:21.920 --> 00:25:32.880
You know, one of the thoughts that has often crossed my mind is you know, even if you could qualify for Medicaid, do you really want to be limited to a Medicaid facility?
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I understand that there are backlogs, you know, lists that you need to get on.
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So, you know, this strategy isn't for everyone.
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And it's I think as I said at the outset, it's important that that folks recognize that it's a very specialized area of law, and there are people like Maggie Sutton that can hold your hand and help you understand all the nuances and all of the gotchas, so to speak.
00:26:00.480 --> 00:26:02.079
So Maggie, thanks for joining us.
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Thanks for having me.
00:26:03.279 --> 00:26:05.279
And as always, we thank our viewers.
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If you have ideas for future episodes, feel free to reach out to us on LinkedIn or email me at andy.keeler at knwealth.com.
00:26:14.319 --> 00:26:19.039
And we'll also happily provide Maggie's contact information at the bottom of the page.
00:26:31.759 --> 00:26:38.400
The opinions expressed in this program are for general information purposes only and are not intended to provide specific advice or recommendations.
00:26:38.559 --> 00:26:43.359
It is only intended to provide education about finance, tax, retirement, and related planning topics.
00:26:43.599 --> 00:26:49.920
To determine which investment strategies are appropriate for you, consult your finance, tax, or legal advisor prior to implementing.
00:26:50.160 --> 00:26:54.079
Any past performance discussed during this program is no guarantee of future results.
00:26:54.240 --> 00:26:58.400
Any indices referenced for comparison are unmanaged and cannot be invested into directly.
00:26:58.559 --> 00:27:02.160
As always, please remember investing involves risk and possible loss of principal.
00:27:02.319 --> 00:27:04.319
Please seek advice from a licensed professional.
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00:27:07.680 --> 00:27:15.920
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00:27:16.079 --> 00:27:20.640
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