We are going to look at the question of life insurance value and Medicaid eligibility parameters in this post. But before we drill down to that specific topic, we will take a broader look at Medicaid planning for senior citizens to provide context.
Long-Term Care Costs
The majority of seniors will need help with their activities of daily living at some point in time. Medicare will serve as a solid health insurance underpinning, and you would expect it to pay for living assistance since most elders will need it.
Unfortunately, this assumption is logical, but incorrect. Medicare will pay for convalescent care after an injury or illness when recovery is expected, but it does not cover custodial care.
You need some deep pockets if you are going to pay for long-term care comfortably because the rates are quite high by most standards.
The annual cost for nursing home care in the Hilton Head, SC where we practice is somewhere in the vicinity of $80,000, and one year is the average length of stay. However, 13 percent of seniors that receive paid care receive the assistance for more than 5 years.
Even if you can make do with an in-home health aide, the expenses are considerable. According to Genworth Financial, in 2021, the median annual cost for a professional home health aide was $66,924 to be exact.
Medicaid does cover custodial care, and this is why it is relevant to senior citizens that will qualify for Medicare.
Medicaid Eligibility and Life Insurance
The Medicaid asset limit is $2,000 in the great state of South Carolina, but there are some allowances and exemptions. You can have as much as $1,500 set aside for final expenses, and this would not count toward this $2.000 limit.
It can be in cash, and you can also have up to $1,500 of whole life insurance. Unlimited term life insurance is permitted because it does not have any cash value. In addition to life insurance and the $1,500, prepaid burial plots are exempt as well.
Other Non-Countable Assets
The other non-countable assets are one motor vehicle, engagement rings, wedding rings, heirloom jewelry, household items, and personal effects. Your home is not a countable asset, but there is an equity limit of $688,000 in our state in 2023.
This home exemption sounds good on the surface, and it can be beneficial, but there is another consideration.
Medicaid is required to seek reimbursement from the estates of deceased beneficiaries. Yes, you can qualify if you own a home, but they could place a lien on the home after your death if it is in your direct personal possession at that time.
However, we should point out an exception to the rule. If one of your adult children has been providing a level of care for you in your home that is enabled you to reside outside of a nursing home for at least two years, you can use the child caregiver exemption.
Under those circumstances, you can sign the property over to your child, and the home would be protected during the Medicaid estate recovery phase.
A healthy spouse that can still live independently while their spouse is entering a nursing home is entitled to a Community Spouse Resource Allowance. This is half of the assets that are countable, but there is a $66,480 limit in South Carolina, which is considerably lower than most states.
You are entitled to a $30 per month personal needs allowance if you are a Medicaid beneficiary, and the rest of your income must be used to defray the cost of the care that you are receiving. However, this requirement is set aside if you have a spouse living in the community as usual that is relying on the income.
If they can prove that they have sufficient financial need, they can receive your income in the form of a Monthly Maintenance Needs Allowance that can be as high as $3,715.50.
Five-Year Look-Back Period
You can give gifts to your loved ones or fund an irrevocable trust to get assets out of your name to qualify for Medicaid, but you have to act in advance. There is a five-your look-back period, so the divestitures must be completed at least 60 months before you apply for Medicaid coverage.
It can seem like this is financially impossible if you are relying on income that is generated by assets that are countable, but the trust would be an income-only trust. You would be able to receive distributions of the trust’s earnings until you apply for Medicaid.
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