What is the Medicaid Income Cap Trust?

How it works and pays for Californians’ health care expenses

Long-term care, including nursing home care, is incredibly expensive. For reference,  the AARP reports that the median cost for a semi-private room in a nursing home was $89,297 per year in 2018.

For most people, even a relatively short period of long-term care has the potential to eat away at a huge percentage of their life savings. Fortunately, there are some options available to help people protect their assets while preserving their eligibility for Medicaid. 

Many Californians Use Medicaid to Cover Long-Term Care Costs

As a starting point, it is important to understand how most families in the United States afford long-term care and nursing home care. Except in limited situations, these types of health care services are not covered by Medicare—even if the applicant is over the age of 65. Instead, long-term care services are typically covered through Medicaid. This is a very important distinction because Medicaid has very strict financial eligibility requirements.

What You Need to Know About Medicaid and Financial Eligibility in California

California’s Medicaid program is known as ‘Medi-Cal’. It is the primary government program through which people seek coverage for nursing home costs and other long-term care expenses. Medicaid’s financial limits are strict. The American Council on Aging (ACOA) provides an overview of the income caps and asset limits in specific situations. As an example, an unmarried applicant in 2019 who is seeking coverage for home and community-based services in California is subject to a $1,242 per month income limit and a $2,000 asset limit. 

The Medicaid Income Cap Trust: Explained

A Medicaid income cap trust is a specific type of estate planning tool and elder law option that can be used to hold income obtained from a person or from Social Security. Each month, a long-term care recipient’s qualifying income can be placed within a protected Medicaid income cap trust account.

The trustee of the account—typically a close relative such as a spouse or adult child—will be responsible for spending the income in an approved manner. When set up right away and followed through properly, an ill person can put their income in this type of trust and keep their Medicaid long-term care eligibility—even if their monthly income is technically above the limit. 

Trust Planning and the Medicaid Look-Back Period

As important and valuable as it is, an income cap trust is just one part of an effective estate plan. With advanced estate planning—starting years before any long-term care or nursing home care is necessary—other types of trusts can be used to transfer assets and protect one’s life savings, while also preserving Medicaid eligibility. If you have any specific questions about Medicaid income caps or long-term care planning, an experienced Southern California elder law attorney can help.

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