Could the Draconian New Medicaid Rules for Long-Term Care in Illinois (effective Jan. 1, 2012) Really Be A Cloud With A Silver Lining?

New Rules

As you may have read in recent columns, Illinois has adopted new rules for Medicaid coverage for long-term care for our citizens and the state of Illinois (“DRA”). These new rules took effect January 1, 2012.  The new rules are going to require that our clients engage in what we call “Five-Year Planning.” This “Five-Year Planning” has become  necessary because of the fact that there will be a new five-year lookback for all Medicaid applicants when there are asset transfers that take place after January 1, 2012.

The Silver Lining

What may come as a surprise to many of our clients is that the unintended consequences of these rules may be that long-term care planning for our clients may actually be enhanced in some ways.

The silver lining in all of this is that while the lookback period and the need to plan further in advance is one of the negative aspects of the new law, the need to use trusts of a very specialized type in order to comply with the five-year look back may actually provide some very positive consequences.

How to take advantage of the New Rule

Following is an example of how the new rules could work in your favor.  Instead of leaving assets for their children outright, parents can now consider leaving assets in trust for their children. Leaving assets in trust for children carries with it the following benefits:

  1. the ability to protect the assets inherited by a child from the creditors and predators of the child, such as divorcing spouses, business creditors, tort creditors, etc.;
  2. the ability to allow the management of the assets to continue under the supervision of the parents’ financial advisor who may have assisted the parents over the years in accumulating a critical mass of assets that can provide for many years of security for the children;
  3. the ability to meet the five-year lookback requirement of the new Medicaid laws;
  4. and, finally, the ability to prevent the children from squandering or losing the assets that the parents carefully accumulated during their lifetime.

We are currently experiencing the greatest intergenerational transfer of wealth in the history of the world. However, there are often problems with transfers of wealth. Quite often, the parents pass away and the baby boomer generation will take funds in what used to be a well-managed and profitable brokerage account, and the money is randomly moved or, worse yet, squandered shortly after it is received.

So I often ask both our clients and their financial advisors if they would  be interested in establishing a systematic relationship for the management of assets so that a client’s family can continue to retain the benefit from financial management even after parents pass away? The recent adoption by the state of Illinois of the DRA will provide an entrée and solution to this problem for all. In the past, this was sometimes difficult to do.

The opportunity to avoid the unintended squandering and loss of assets at the death of the parents now exists with the increased usage and importance of so called Five- Year Planning as part of our “senior” estate planning process.  This planning always existed, but is now more critical than ever, with the passage of DRA in Illinois and the required “5 year or 60 month lookback period.” My preference is to work with clients and their advisors  who appreciate the wisdom of keeping client assets protected from creditors and under  management of the financial advisor.

Call To Action

If this interests you, then please call my office so that we can schedule a time to meet and I can discuss this new law with you. I think you’ll be amazed at the opportunities that the law presents to the older generation, as well as to the younger generation.

You have our best wishes for the new year! I hope to speak with you soon.