A Look at the 4 Ways to Avoid Spend Down

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Table of Contents

Long-Term Care Insurance
Annuities
Pre-Paid Funeral Plans
Gifting
Questions and Answers

Long-Term Care Insurance

Given the high cost of care, long-term care insurance is becoming an important part of many estate plans. There are a number of factors that you must consider when choosing a plan.

• The decision to purchase this type of insurance must generally be made while you are in good health. Once you have a disabling condition or illness, it can be too late to purchase the insurance, as you are no longer insurable.
• You must decide on the amount of coverage you wish to purchase. Most policies pay a fixed dollar of benefit; e.g., $150 per day. You must also decide how long your coverage should last once you begin receiving the benefit payment; e.g., 3 years.
• Some policies allow you to apply for an Inflation Protection Policy Rider that will automatically increase the amount of your daily benefit by 4% to 5% each year. This added amount of benefit helps you keep current with the increasing cost of care.
• Some policies allow you to apply for a Waiver of Premium Policy Rider that will suspend future premiums after you have been receiving benefits for a specified number of days; e.g., 90 days.
• Does the policy allow you to use facilities other than a licensed or state certified institution?
• Does the policy provide for different levels of care such as: skilled care, intermediate care, and/or custodial care?
• You must decide on the deductible or waiting period. This is the number of days when you must pay your own bills "out of pocket" before the policy will start paying your daily benefit. This period of time can range from 0 to 90 days.
• Determine whether the policy covers organic brain disorders such as Alzheimer's disease.
• Determine whether the policy provides coverage for home health care.
• Obtain the financial ratings of the companies your are considering. This will determine the strength and stability of the company.
• You may want to consider a policy that is "tax qualified". The premiums payable on this type of policy can qualify for the medical expense itemized deduction on your tax return.

You can see there are many factors that you must consider when choosing a plan. It is important to work with an insurance professional that can help you find the plan that best suits your needs.

Annuities

The use of a specialized type of annuity called an immediate annuity has become a popular tool in planning for long-term care. This type of annuity has been used in conjunction with protecting assets from Medicaid spend-down. The idea behind this strategy is to use the money deposited in the immediate annuity to create a monthly income for the remainder of your life. Although the income is available for use in covering the ongoing cost of care, the principal amount is protected from the spend-down process. It is important to work with an insurance professional that understands this type of transaction. There are very specific guidelines that must be followed and restrictions on this type of transaction vary by state.

Pre-Paid Funeral Plans

One area that is frequently overlooked when planning for long-term care and Medicaid protection is the use of a pre-paid funeral plan. Most states now allow a recipient to buy a pre-paid funeral plan of at least $1,500. The limit for irrevocable plans is generally much higher. As an example, if your state allows $4,000 for a pre-paid funeral plan then you should use the full amount you have money for to buy a plan. Your state may also allow other burial expenses such as coffin, vault, plot, etc. to be included in the exempt status.

Gifting

In determining an applicant's status, Medicaid examines all gifts and transfers made by the individual within a period of up to 60 months. In other words, Medicaid can look-back for up to 5 years to examine the applicant's financial transactions. Financial transactions made before that period are not subject to the look-back. Medicaid is investigating whether the applicant received fair market value for all transfers or whether the transfers were really "gifts." Transfers that are considered gifts are subject to penalties imposed by Medicaid.

Questions and Answers