Saturday, July 9, 2011

4 Strategies to Protect Your Assets From Nursing Home Costs

Are you worried that your life savings will be lost if you ever need care in a nursing home. This article discusses some ways you can protect your assets from nursing home costs by planning in advance. 

Nursing homes are so expensive (about $8,000 a month on average in Pennsylvania) that most nursing home residents qualify for Medicaid to help pay for the cost of their care. Before they qualify for Medicaid the nursing home resident must “spend down” their financial resources to the low levels required by the Medicaid program rules ($2,000 or $8,000 in Pennsylvania for an unmarried nursing home resident).   

Seniors have various reasons for wanting to preserve some of their assets. Some don’t ever want to be left in the position of being dependent on the government and having only $2,000 in savings, and $45 a month in income to meet their needs. Others want to pass along at least some modest inheritance to children or other family. Whatever the reason, the senior may want to transfer financial and other resources to family members so that those assets are protected from nursing home costs.  

Medicaid Places Restrictions on Gifts

Medicaid law has long sought to limit the ability of an individual to divest assets in order to meet the resource level required for Medicaid nursing home eligibility. States are required to withhold Medicaid payment for various long-term care services for individuals who dispose of assets for less than fair market value within five years of applying for benefits.  

The asset transfer penalties apply if you give away income or assets and then need to apply for Medicaid long-term care benefits either in a nursing home or in your own home. The penalties apply if the transfer was made by you, your spouse, or by someone else acting on your behalf. There are some exceptions to the transfer penalties that may apply depending on your particular situation.

The transfer penalty law has a five-year look-back and penalty start date rules that encourage individuals to plan long in advance of incapacity. To best protect their assets, individuals need to plan a full five years in advance of application for Medicaid long term care benefits.  When you plan well in advance of the need for care, you have lots of options available to you. 

Some Planning Options you can Consider

Many seniors plan to give away their interest in the asset(s) they want to preserve to children or other family and then wait out the five-year look-back period. For this type of planning to work best, the senior must retain sufficient assets, or have other payment sources available, to pay privately for care through the five-year look-back period. There are many variations on this strategy. Here are some illustrations.

Example 1: Retaining enough assets.
John owns his home (worth $300,000) and $500,000 in investments. He feels strongly that he has worked hard all his life and paid his taxes and now he wants to be sure that his two children will receive an inheritance from him. After thorough review and discussion with his lawyer, tax adviser, investment adviser, and children, he decides to give the home and $100,000 in investments outright to his children. “I’m giving them an early inheritance,” John says. John will keep the remaining $400,000. That amount plus his income should be more than enough to allow him to pay privately for long-term care for a full five years.

Example 2: Leveraging Long-term care insurance.
John owns his home (worth $300,000) and $500,000 in investments. He feels that he worked hard all his life and he wants to be sure that his two children receive an inheritance from him. After thorough review and discussion with his lawyer, tax adviser, investment adviser, and children, he decides to give the home and $400,000 in investments outright to his children. “I’m giving them an early inheritance,” John says. “Now is the time they need money the most.” John will keep the remaining $100,000. That amount, plus his income, would not be sufficient to allow him to pay privately for long-term care for a full five years. So, John purchases a long-term care insurance policy. The policy benefits, plus the $100,000 and his income, will allow John to pay privately through the full five-year look-back period if necessary.

Example 3: Relying on the children.
John owns his home (worth $300,000) and $500,000 in investments. He feels that he worked hard all his life and he wants to be sure that his assets pass to his two children. He feels he has adequate income from his pension and Social Security to provide for his needs for the rest of his life, unless he needs expensive long-term care. After thorough review and discussion with his lawyer, tax adviser, investment adviser, and children, he decides to give the home and $450,000 in investments outright to his children. “I’m giving them an early inheritance,” John says. John will keep only the remaining $50,000.
“If I need expensive care, I’m sure the kids will pay for it,” says John. “After all, my lawyer says they could be liable anyway under Pennsylvania’s family (filial) support laws. And my accountant says that if the kids end up paying for my nursing home care, they may be able to get some tax deductions.”

Example 4: Transfer to an Asset Protection trust.
John owns his home (worth $300,000) and $500,000 in investments. He feels that he worked hard all his life and he wants to be sure that his assets pass to his two children. After thorough review and discussion with his lawyer, tax adviser, investment adviser, and children, he decides to transfer the home and $200,000 in investments to a Medicaid irrevocable grantor trust to protect them from nursing home costs. John will keep the remaining $300,000. He will feel most comfortable having $300,000 in savings readily available to him. And his retained savings ($300,000) plus his Social Security and pension income should be more than enough to pay for any long-term care costs that he may incur over the next five years.

Don't Try to do this without Expert Help

These are just a few examples of kinds of advance planning that people use to protect their home and investments from nursing home costs.  Other planning options may be better for you. An experienced elder law attorney will be able to help you find the option that is best for you and your family.    

Here is one critically important piece of advice. Don’t try any of these strategies without the assistance of a lawyer who really knows what he or she is doing.  Recognize that few lawyers understand this area of law. Seek out the assistance of a Certified Elder Law Attorney. If you are in Pennsylvania you can get help through one of the offices of my law firm,  Marshall, Parker and Associates, which has 3 Certified Elder Law Attorneys on its staff.  If you are not in Pennsylvania a list of all Certified Elder Law Attorneys in the United States is available on the website of the National Elder Law Foundation www.nelf.org. You can find one with an office in your geographic area.  

The author of this article, Jeffrey A. Marshall, has been Certified as an Elder Law Attorney by the National Elder Law Foundation under authority of the Pennsylvania Supreme Court. 

1 comment:

Matt Cutts said...
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