Question: My elderly but healthy parents own some collectables valued at approximately $100,000. They also jointly own their house with a value of $135,000. They have about $150,000 in cash and retirement accounts worth $125,000. What planning can be done now so that these asset protection may be retained by the family if my parents need to go into a nursing home in the future?
Answer: First, let me say that it is nice to see a family discussing planning in advance of the need for long-term skilled nursing care. By planning now a greater variety of options are available to meet your goals. I am going to presume that you are concerned about preserving assets if your parents need to rely on Medicaid to pay the nursing home bills. The Medicaid rules vary somewhat for each state, but as a general principal to get the most preservation you will need to plan at least 5 years in advance of the need for care.
Any planning that is done must consider not only the rules for Medicaid eligibility but also the recovery (or payback) rules. For example, the home is an exempt asset protection for eligibility purposes and it could remain in your parents’ name, but upon the death of the remaining spouse the state will want to be paid back for the care it provided to the ill spouse, which could result in the forced sale of the home.
Asset Protection will fall into 2 categories – converting assets from non-exempt to exempt and getting assets out of your parents’ names, i.e., giving them away. Some examples of conversions include using funds to make repairs or improvements to the home, buying mom and dad a new car, purchasing a Medicaid compliant annuity or entering into a personal care contract.
Because giving assets away means a loss of control over the asset, your parents need to be part of the plan. If they are “young” healthy elderly they may not be ready to give up control. Flexibility in the plan will be important as will giving assets away in the right way.
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 what if the child divorces, is sued or is just not good with money? Mom and dad’s hard earned assets may be taken away forever. Included in the definition of “giving away” is adding a child’s name to the house deed or bank accounts. Therefore giving assets away in the right way is critical. Special irrevocable trusts work nicely to provide the protections your parents need.
A final word of warning when giving assets away, if 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.
When it comes to Medicaid and asset protection planning timing and knowledge are everything and it is not a do-it-yourself project. An elder law attorney in your state will be able to guide and educate your parents about the Medicaid rules applicable in your state and which preservation techniques will suit them best.
Heather R. Chubb, Life Transitions Lawyer
The Chubb Law Firm
Gold River, California 95670