Our senior clients frequently express their concern about losing their estate to the cost of nursing home care. Clients usually want to pass some of their legacy out to their children. With nursing home care costing over $80,000 per year, most people end up paying for care out of their savings until it is gone. Once the assets run out, they are entitled to receive some assistance from the government in the form of Medicaid, but by then, it’s too late.
As the possibility of nursing home care becomes reality, people often do their own planning, which can be more of a detriment than no plan at all. Do-it-yourself planning is often based on a misunderstanding of the rules or is based on the rules as they existed decades ago. Careful advance planning can help protect your estate.
Generally, Medicaid funds are not available until a person enters a nursing home and their assets are under $2,000. As most people are aware, Medicaid will look at transfers made within 5 years prior to the application for Medicaid. This is what is generally referred to as the “look-back period”. If the need for long term care is not immediate, your house and other real estate can be transferred into a nursing home trust. While you and your spouse are in good health, the 5-year look back period runs. Even though the house and other real estate are in the nursing home trust, you will live in the house and use the property as usual. You will even get to continue to deduct your property taxes. At the end of the 5 years, the property will be out of your estate and not susceptible to liens from the nursing home, collection from the State, and will not count against you for Medicaid coverage.
This is an important difference from transferring real estate to your kids. We see many people simply transfer their house and other property outright to their children. While this can work to shield assets from nursing home liens and attachments, it does not provide for your future care. As you are relinquishing control of your property if assets are simply transferred to your children, you run the risk of your home or assets being lost to mismanagement, lawsuits, creditors, or divorce. Often, the loss of funds is not due to any type of wrong-doing by the children, but rather to events happening in their lives that are out of their control. Furthermore, the nursing home trust may have the added benefit of helping your children avoid many of the unforeseen consequences of having assets transferred into their names. For example, if your children hold your assets in their name, they may run into problems getting eligibility for their children’s educational financial aid. Furthermore, because the property was gifted to them, your children may also have to pay capital gains on the sale of the real estate when the property is sold.
If nursing home care is a concern, consider a nursing home trust as part of your estate planning. We will be happy to discuss your options with you.
Epiphany Law Estate Planning Team