The real threat to our long-term financial health

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Worried about the 35% estate tax? That’s peanuts!

How about the 100% “Medicaid tax”?

For years, clients have been very concerned about the estate tax. I have reassured them that the estate tax will not impact you unless you have more than $5 million for individuals and $10 million if you’re married.

Now contrast that to the cost of what I call the “Medicaid tax.” The “Medicaid tax” is the government’s requirement that you spend your assets down to $2,000 (as a single person) before you get any Medicaid help for your custodial care or long- term care, either in a Supportive Living Facility (similar to an assisted living facility) or an Intermediate or Skilled Nursing Facility.

This terrible governmental requirement to spend down to $2,000 is what I refer to as a 100 percent Medicaid tax, because effectively you have to be down to zero assets before you get any assistance with maladies that require custodial care, such as dementia, Alzheimer’s, Parkinson’s, MS, ALS, COPD, muscular dystrophy, etc.

Therefore, I politely ask my clients to “wake up and smell the coffee.” Quit obsessing over the effect of the estate tax. It will not affect most of us.

On the other hand, consider the government-mandated Medicaid spend down of your assets to paltry $2,000. This will affect most of us.

Why will this affect most of us? Because, due to the advances of medical science, most of us are living much longer (thankfully). However, while we are living much longer, we also need more care as we age. Couple this with the fact that the average cost of a Supportive Living Facility (SLF) is somewhere around $4,000 a month and the average cost of an Intermediate or Skilled Nursing Facility is $6,000 to $10,000 a month. This creates a “perfect storm” scenario that can lead to a Medicaid spend down of your assets to a measly $2,000. And that $2000 has to last you for the rest of your life. This is, in my view, the equivalent of a 100 percent “Medicaid tax.”

How treacherous is it to be spent down to $2,000? Let me give you an example.

We recently had a client at our office who needed abscessed teeth to be removed. Our client was 85 years of age and spent down to $2,000. She was told that the only available Medicaid dentist in Cook County would take her, but it would require her to wait six to eight hours in the waiting room. My client had moderate to severe dementia and could not last six to eight hours in a waiting room. It would have been nice if she had come to me earlier so I could set aside a rainy day fund for her. This would be a legal re-allocation of her assets so that she could have funds for things like teeth extraction, but still qualify for Medicaid benefits.

We had another client that required hearing aids. Hearing aids cost $6,000. How do you buy them when you’re spent down to $2,000?

So we inform our clients that they should not be concerned about the estate tax unless they are very, very wealthy. The more likely severe financial impact that will hit most of our clients comes from the devastating cost of long-term care.

Clients have to understand that they must plan while they still can. Unfortunately, this window can sometimes close very quickly due to the onset of a stroke, heart attack, accident or some other catastrophic disability.

It’s important to explore your options now, so you don’t go broke the aging process.

For more, call 847-292-1220, e-mail or visit

About Anthony B. Ferraro

Anthony B. Ferraro is the founder and managing member at the Law Offices of Anthony B. Ferraro. He received his Bachelor of Science degree in accountancy from DePaul University and his Master of Science in taxation. After receiving his CPA designation in 1978, he enrolled in law school, earning his Juris Doctor in 1983 from De Paul University. An elder law practitioner, his practice areas include Medicaid planning and applications, guardianship, probate & trust administration, long-term care planning, nursing home contracts and admission, senior estate planning, special needs planning, estate planning, and estate taxation.

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