Question: I was speaking with a friend and she mentioned that I should consult an attorney for asset protection. I do not have a taxable estate, but she referred to a 5-year lookback. I do not understand why I would need asset protection.
Answer: Your friend was most likely referring to asset protection relating to long term care planning. In the event that you require care in a nursing facility, you may be able to rely on Medicaid to pay for your room and board. As you are likely aware, Medicare and private health insurance will not pay for a nursing home. Absent purchasing sufficient long-term care insurance, you will either need to pay privately or rely on Medicaid. The average cost of a nursing home on Long Island is $15,000.00 per month. This will typically result in the rapid depletion of any savings for most individuals.
Medicaid is a means tested program with asset requirements. An applicant for Medicaid cannot have assets that exceed $15,450.00 (in 2019), excluding retirement assets as long as they are in the required pay-out status and an irrevocable pre-paid burial account. When an applicant applies for Chronic Medicaid, the local Department of Social Services will “look-back” five years at all financial accounts in the name of the applicant and the applicant’s spouse. The purpose of this look-back is to determine whether the applicant (or spouse) has transferred any monies out of his or her name in the five years immediately prior to the application for Medicaid. To the extent that assets have been transferred, the Department of Social Services will penalize the applicant which will result in a period of ineligibility for Medicaid. For approximately every $13,000.00 transferred, Medicaid will not pay for one (1) month in a nursing home.
By engaging in estate planning while you are healthy, you can minimize your asset exposure if a time comes when you need to rely on Medicaid. The gold standard for asset protection, is the creation and funding of an Irrevocable Trust. If you were to fund an Irrevocable Trust with certain assets and more than 5 years pass, Medicaid will not look to those trust assets as available to pay for your own care. It is important to note, that even without planning, New York law currently allows certain exempt transfers that can be done on the eve of entering a nursing home to preserve some or all of the assets.
Due to the ever-changing law, pre-planning is always preferred. A consultation with an Elder Law Attorney to explore your options with respect to estate planning and asset protection is an important step in preserving your estate.