Why You Should Plan Ahead for MassHealth Eligibility

It’s estimated that 70% of people over the age of 65 will require some type of long-term care services during their lifetime. That could mean needing assistance with at least a couple of activities of daily living, such as eating, dressing, or bathing, and possibly even a higher level of care. In the Boston area in 2017, approximate costs for assisted living were $5,975/month and $12,120/month for nursing homes. How can anyone afford this huge expense? The key is to plan ahead for the possibility of a disability or long-term care.

Estate planning can help you save money to be able to better manage these expenses. It can be difficult to visualize this, so I’m providing an example using an irrevocable grantor trust and a special needs (d4a) trust to help explain some of the drastic savings that are available to those who plan ahead.

Without Estate Planning
The basic rule for MassHealth long-term care eligibility is that if you apply, whether single or married, you can have only $2,000 in countable assets in your name. If your spouse plans to continue living in the community, your spouse is allowed to keep approximately $128,640 in their name (figure updated for 2020).

Let’s say that Mom and Dad have a house worth $250,000 and also $200,000 in savings. They have done no estate planning, and Dad requires long-term care after suffering from dementia. In order for Dad to qualify for MassHealth, they will have to spend about $80,000 because Mom is only allowed to keep $128,640 in assets, not including the home.

If Dad later passes away and Mom needs care, she will have to spend down the remaining $80,000 before becoming eligible for MassHealth because long-term care applicants are allowed only $2,000 in assets. Depending on the level of care needed, a lien may be placed on the family home as well. Suppose further that Mom dies leaving $40,000 outright to her disabled adult son who is receiving public benefits. Those assets could be counted against him and he could lose his public benefits until he spends the $40,000, which could have been avoided.

With Estate Planning
What if Mom and Dad had the same assets, but created an estate planning strategy using trusts? They could create an irrevocable trust and transfer their home to it, assigning the remainder to a special needs trust established for their son. They could also fund their son’s special needs trust with some of their savings, say $100,000.

Five years and one day from the date of these transfers, Dad will be able to qualify for MassHealth right away, since Mom will only have $100,000 in assets. If Mom has enough income to satisfy her lifestyle, like from social security, she could then transfer her remaining assets to her son’s special needs trust. Transfers to a special needs trust aren’t considered disqualifying transfers so she would be able to qualify for MassHealth immediately if she needs long-term care.

In this scenario, Mom and Dad were able to save over $400,000 from long-term care costs and support their disabled son without jeopardizing his public benefits. When Mom dies, the home will receive a full step-up in basis (i.e., readjustment of the value of the home which will be at a higher market value at the time of inheritance) so that it can be sold through the trust with no capital gains taxes due. The sale proceeds will pour into the special needs trust and help supplement their son’s needs for the rest of his life.

By planning ahead, a large amount of assets have been protected, taxes on the family’s estate have been greatly reduced, and the family is able to use their assets how they see fit to support their son. In order to utilize a strategy such as this, however, timing is key—you can’t just wait for an emergency to hit, you must plan now. To learn more about the estate planning options available for your family, contact us at mkarr@maheritagelawcenter.com or 617.299.6976 to set up a free, confidential consultation.