Back in the misty old days of law school, we neophyte Estate Planners were taught the importance of drafting documents to help our individual clients develop an estate plan that kept them in full control during their lifetime, that provided for their spouses and children after their death, and that provided tax efficient ways to allow for the transfer of assets on to the next generation after death.

So, for our typical married couple, we would prepare either two individual Revocable Grantor Trusts or a Joint Trust, which would provide for each other’s needs during lifetime, with distribution only after death to the kids. We prepared Powers of Attorney, and we prohibited the agent from making gifts to himself or to others. We made sure our couple named each other as primary beneficiary on all their retirement accounts, life insurance, annuities and the like.

These were really good ideas, and these plans still work really well, providing you either remain absolutely healthy up until your death, or you have so much money that the cost of extended nursing home care (which now runs close to $100,000 a year) won’t exhaust your savings.

However, these plans do NOT work out well for those who do suffer ill health in old age, and who do not have substantial savings and investments. Nursing home costs are NOT covered by Medicare (except a possible short term stay), and an extended nursing home stay for one or both individuals in a married couple will exhaust many if not most normal estates. Once the assets are gone, Medicaid will take over. However, there won’t be any inheritance left for any family. This is even more true now that we have Medicaid “Estate Recovery,” meaning that even the house – an asset that doesn’t hinder eligibility to get onto Medicaid – will now be taken to pay the state back for the Medicaid benefits it provided for the person.

SO, what can be done in order to plan for getting assistance with nursing home costs from the Medicaid program?

As a rule of thumb, those who have reached the age of 75 or who have suffered ill health at an earlier age should at least consider the risks of long term care and speak with an Estate Planner who understands the Medicaid rules, irrespective of how illogical and odd they are, and who can help review your Estate Plan and documents to assist if you or your spouse need nursing home care. Medicaid “planning” means getting all or some of the assets out of the name of the person who needs nursing home care, and over to someone else, in ways that the Medicaid program allows. There are many, and often inconsistent, rules, and they are very fact dependent, so the best approach will always require a careful examination of the situation being faced. However, understand that broadly the Medicaid rules do allow for one person in a married couple to become qualified for Medicaid while preserving most if not the entire estate for the other person, and even when a person is single, he or she can probably preserve at least half of his or her estate – if in fact Medicaid is appropriate and needed.

To be able to take advantage of this sort of Medicaid planning, though, your general Estate Planning documents need to allow for gifting and transfers to others. Because Medicaid rules count any asset, even a home, that is in a Revocable Grantor Trust, you need to have the clear ability, in the trust document, to transfer assets out of the trust and back into the individual’s own name. Also, because most nursing home residents need care because of dementia, and therefore the resident is unable to make financial transactions anymore, there needs to be a broad, durable power of attorney that specifically allows gifting and transfers, so that the agent for the nursing home resident may make the gifts or transfers that are needed.

Obviously, these types of documents need to be created and signed before one becomes disabled, and the person who signs them needs to understand the consequences of the documents. There may need to be separate and very different types of trusts created to hold assets that are being transferred. For married couples, particularly if one is already in ill health, you want to make sure you understand the significance of how assets are held, and understand what happens if the seemingly healthier spouse suddenly dies. You need to consider who is named as beneficiary on life insurance policies, retirement type accounts, annuities and similar contracts, and whether and how this can be changed if the named beneficiary becomes disabled.

You need to understand that Medicaid has harsh rules about making transfers if they are NOT done within the Medicaid guidelines. Medicaid now inquires into any transfer for less than fair market value made within five years of the time a Medicaid application is made. If a person gave money to his or her children, this is a gift. If he or she paid for a child’s or grandchild’s college education, this is a gift. If he or she gave money to his or her church, university, or United Way, this is a gift. Medicaid policy makes no distinction (although in reality, Medicaid mostly wants to prohibit giving away money to kids). If a person has made significant gifts, his or her Medicaid eligibility will not begin until such time as a penalty period has expired. Gifting causes huge problems nowadays, since the kids usually cannot or will not return any funds given them – they’ve spent them already.

When do you need to deal with these issues? Sadly, we never know when disability may hit. However, the likelihood of disability increases dramatically with age, so don’t wait too long to consider estate planning for long term care.