We strive to be informed consumers. We perform Internet research to ensure we are paying the lowest price for our new cars. We find credit cards offering the best rebates and we might even do our laundry at night to benefit from the lower electricity costs. Yet oftentimes, when it comes to planning for one of the most costly events, a move into a nursing home, we do little in advance because we don't want to accept that it may happen to a parent, a relative...or to us.Those in denial, partly due to feeling impervious to this plight, need only look at Ronald Reagan to see how a man who was in the most powerful position on earth can become totally dependent on long-term care, in his case due to Alzheimer's Disease.
"Elder law" is the nineties term attorneys have coined for the practice area dedicated to advising clients on preparing for this stage of life. Only one public assistance program, Medicaid (or Medical Assistance), will pay the nursing home when a person's assets are diminished. The problem with Medicaid is that, to qualify, your assets must be below $2,500. Elder law attorneys advise families on the tricky aspects of planning to become eligible for Medicaid.
Families can adopt an aggressive plan and give away all of their assets so that there are none to spend down at the nursing home. Or they may choose to retain some assets and gift others in order to reach the $2,500 level. The elder law attorney should analyze a person's physical needs, assets, family concerns and tax issues, then with one eye on Medicaid laws, counsel the family on how to best preserve family assets.
Here are planning suggestions to be considered at various stages of need for people over age 60:
If There Are No Significant Health Concerns
1. Invest in long-term care insurance. Purchase this coverage now, at this age it's cheap and you can't buy it once certain permanent illnesses are diagnosed.2. Create a durable power of attorney. Execute a "fresh" one every few years to appoint a family member to step in to handle your assets if a health crisis suddenly occurs, rendering you incompetent. Make sure it authorizes the person to make gifts of your assets (most forms omit this).
When Some Health Concerns Have Arisen
1. Consolidate assets and shed nuisance investments. Merge bank and mutual fund accounts. While you are able, sell off smaller investments like real estate lots and limited partnerships, as they take time to unload.2. Consider gifting assets to children or a trust. You may opt for gifting assets to children or a trust you create (with children as trustees) rather than risking exhausting assets on a nursing home. Consider the gifts as a "slush fund" for your care. The sooner gifts are made, the sooner those funds are protected.
When Nursing Home Confinement is Imminent
1. If married, do not give away assets until advised. Medicaid provides a formula which allows the well spouse to keep one-half the total assets owned, up to $80,760, based on the total when the one spouse was confined. By retaining assets at this point in time, the allowance for the well spouse may be higher.2. If single, budget to make gifts. Generally, there is a one-month period of ineligibility from Medicaid for every $4,300 gifted. The strategy is to gift assets but leave enough to pay for care while waiting out the period of ineligibility. Do not gift or sell your house without considering income tax implications and Medicaid exemptions for a house.
Once Admitted to a Nursing Home
1. If married, the well spouse can purchase an annuity. This type of investment converts excess assets that would otherwise exceed the Medicaid limits into an exempt income stream for the well spouse.2. If single, it is not too late to consider gifts. Most people are under the misconception that gifting assets is precluded upon admission to a nursing home. Generally, half a person's assets may be preserved even if he or she is institutionalized.
Seek elder law advice years before you or a family member may be a candidate for long-term care. The best plan will be the one that can be fully implemented.
Kevin F. Bress is a principal in the law firm of Hodes, Ulman, Pessin & Katz, P.A.,
901 Dulaney Valley Road,
Suite 400, Towson, MD 21204.
(410) 339-6767.