Question: “My parents have a net worth of $1.5 Million. Is it unrealistic for them to gift most of their assets to their children if they did not buy long term care insurance? They will keep an ample amount just to live on.”
Answer: Whether giving away assets is a good strategy for your parents will depend on a number of factors including their age, health, how they feel about giving up control over their assets, and how they feel about having less flexibility regarding where care can be provided.
Oftentimes assets are given directly to a child with the thought that the child will use the funds for the parents later when the need arises. But a true and complete gift does not come with strings, once given to the child there is no legal obligation on the part of the child to help mom and dad later. What if the child does have good intentions to help mom and dad, but divorces, is sued, is influenced by a spouse, or is just not good with money? Mom and dad’s hard earned assets may be taken away forever.
Giving assets away can be tricky. If after giving assets away mom or dad needs care prematurely i.e., within 5 years of the gift, a penalty period or period of ineligibility for Medicaid will result. This period will not begin to run until mom or dad applies for Medicaid.
You don’t indicate your parents age or health status, but purchasing a long-term care insurance policy to cover a period of 5 years could be a good investment. There are policies available that include a return of premium feature, meaning that if the policy is not used the premiums are given back. There are also life insurance policies that have long-term care riders. With this type of policy if long-term care is needed the policy is tapped and if not it continues as a regular life policy paying a benefit on death.
It will be worthwhile to consult with an elder care attorney to learn about all the options for long-term care planning available. The guidance of a professional will save the family time, money and stress in the long run.
Heather R. Chubb, Life Transitions Lawyer
The Chubb Law Firm
Gold River, California 95670