How to Protect Your Assets from Long-Term Care Costs in Florida

Long-term care can be expensive. Sadly, it’s not uncommon for individuals to spend down their life savings to pay for the cost of care. Fortunately, in Florida, Medicaid can help cover long-term care costs for those who qualify. However, you must meet strict income and asset requirements to be eligible for Medicaid. 

Let’s go through some of the strategies for Medicaid planning that will protect your assets from long-term care costs.

What is Medicaid Planning?

Medicaid planning involves arranging your assets and income to meet the eligibility requirements for Medicaid, while still trying to preserve as much of your assets as possible. 

Medicaid planning is legal and ethical, but it’s essential to work with an experienced elder law attorney to ensure that you comply with all the rules and regulations. Failure to do so can result in costly penalties and delays. 

Florida Medicaid Eligibility Requirements

To qualify for Medicaid, you must meet specific income and asset requirements. In Florida, as of 2023, the asset limit for Medicaid is $2,000 for an individual applicant. If you have a spouse staying at home and not applying for care, the non-applicant spouse may retain up to $148,620 of the couple’s assets.

However, not all assets count toward this limit. For example, your primary residence, personal belongings, and one vehicle are exempt from this limit.

Medicaid Planning Strategies

1. Start Early

Starting early is one of the most important aspects of Medicaid planning. Medicaid has a five-year look-back period, which means that any transfers of assets made within five years of applying for Medicaid may be subject to penalties. This means that if you transfer assets to someone else or give them away, you may be ineligible for Medicaid for a certain period of time, depending on the value of the transferred assets.

By starting the Medicaid planning process early, you have more options available to you. You may be able to transfer assets to a trust or give assets away as gifts in a way that does not trigger a penalty. You may also be able to explore other planning strategies, such as annuities or long-term care insurance, which can help protect your assets from the high cost of long-term care.

2. Create a Trust

Creating a trust can be an effective strategy for Medicaid planning. There are different types of trusts, but for Medicaid planning purposes, an irrevocable Medicaid Asset Protection Trust is usually the best option.

An irrevocable trust is a trust that cannot be changed or revoked once it has been created. By transferring assets to an irrevocable trust, you remove those assets from your estate and protect them from long-term care costs. However, you can still receive income from the assets, which can be used to pay for your living expenses.

One of the key benefits of using an irrevocable trust for Medicaid planning is that it allows you to plan ahead and protect your assets before you need long-term care. If you wait until you need care to transfer assets, you may be subject to the five-year Medicaid lookback period and face penalties.

There are specific requirements for irrevocable trusts to be considered exempt from Medicaid’s asset limit, including the requirement that the trust be irrevocable and that you cannot be the trustee. Our experienced Elder Law Team will ensure your trust is set up correctly and complies with Medicaid rules and regulations.

3. Gift Assets

Gifting assets can be a strategy to reduce your assets and meet the Medicaid asset limit. The idea is to transfer ownership of assets to your loved ones before you need to apply for Medicaid, so those assets no longer count towards your eligibility. 

However, it is important to keep in mind that there are rules and limitations to gifting. Any gifts made within five years of applying for Medicaid may be subject to penalties. This means that if you give away assets within five years preceding your application, you may be ineligible for Medicaid for a certain period of time.

Lastly, it’s important to be aware of the annual gift tax exclusion. In 2023, the annual gift tax exclusion is $17,000 per person. This means you can gift up to $17,000 per year to as many people as you want without incurring a gift tax. However, if you gift more than $17,000 to any one person in a given year, you may be subject to a gift tax. The current federal gift tax rate is 40%.

4. Purchase Long-Term Care Insurance

Long-term care insurance can help cover the costs of long-term care and reduce the need for Medicaid. However, long-term care insurance can be expensive. It may not be available to older adults or those with pre-existing conditions. Insurance companies typically require a medical examination and may deny coverage based on a pre-existing condition.

If you decide to purchase long-term care insurance, reviewing the policy’s terms and conditions carefully is important. Be sure you understand the coverage limits, deductible, and any exclusions or limitations. You should also consider the financial stability and reputation of the insurance company, as well as the company’s history of premium increases.

While long-term care insurance can be a valuable tool for protecting your assets from long-term care costs, it’s important to remember that it is just one part of a comprehensive estate plan. Long-term care insurance should be used in conjunction with other strategies, such as Medicaid planning, to ensure that you have a solid plan in place for the future.

5. Maximize Income with a Qualified Income Trust

Another strategy for Medicaid planning is to maximize your income. Medicaid has income limits, but there are ways to structure your income to meet these limits. 

For example, you can use a Qualified Income Trust (QIT) to receive income from assets without counting them toward the Medicaid income limit. The QIT is set up so that the income is paid to a trustee, who then pays it to you or your designated beneficiaries.

It’s important to note that Qualified Income Trusts are often established and administered improperly. Medicaid audits these types of trusts often, and will not hesitate to revoke Medicaid benefits, even retroactively. It’s important to work with an experienced elder law attorney to understand the rules and limitations of Medicaid when it comes to income and trusts.

Are You Prepared for Long-Term Care Costs?

Long-term care costs can be a significant financial burden for individuals and families. Medicaid can help cover the costs of long-term care, but eligibility requires meeting strict income and asset requirements.

Medicaid planning can help protect your assets from long-term care costs while meeting these eligibility requirements. By starting early, creating a trust, gifting assets, purchasing long-term care insurance, and maximizing income, you can create a Medicaid plan that meets your needs and preserves your assets. 

An experienced elder law attorney like the team at The Estate, Trust, and Elder Law Firm can help explore your options and create a Medicaid plan that works for you. Click here or call us at (772) 828-2588 to get started today.

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