Home and Asset Protection Plan
For most of us there are certain key moments during life’s journey when we find ourselves at a fork in the road. Sometimes these moments are filled with joy and anticipation such as getting married, expecting a first child, graduating from school or college, or starting a business of your own. Other landmark occasions are much more fraught with sadness or anxiety such as being diagnosed with a serious or chronic illness, the diagnosis of a child suffering from a severe disability or the death of a loved one. Still other turning points feel like “mixed blessings” such as exchanging one job for another, facing the prospect of retirement after a lifetime of hard work, planning for the turnover of a business to a junior partner or to your child, downsizing one’s home, considering a move into an adult community or into an assisted living facility.
The Chinese symbol for the word “crisis” is a combination of the characters representing “danger” and “opportunity.” When your life is at a crossroads (whether happy, sad or mixed), it is generally a time that includes both dangers to be avoided and opportunities to be pursued. Taking the right fork in the road can make all of the difference in the world.
The purpose of this series of articles, workshops and seminars, entitled “LIFE AT THE CROSSROADS”, is to identify the best strategies and resources needed to discern the correct path to take during life’s key milestones. How to avoid both known and unknown perils and how best to spot and take advantage of both obvious and more obscure opportunities will also be highlighted.
Because it sometimes takes a village (or at least a “team” effort) to handle all of the facets of a complex situation, another significant goal of this “LIFE AT THE CROSSROADS” series will be to introduce a panel of trusted advisors with expertise in a variety of fields including real estate, tax, accounting, home health, Medicaid, Medicare, financial planning and more.
“Will I Lose My Home?” – Real And Imagined Concerns Due To The High Costs Of Disability And Skilled Nursing Care
One of the most frightening questions that a person might ever have to ask, and certainly one of the most heart wrenching questions ever addressed to a lawyer, is “will I lose my house?” Yet I hear this question far too often; in most cases shortly after a client (or a client’s spouse) has been diagnosed with Alzheimer’s disease, suffered from a stroke or otherwise faces the prospect of a long term disability.
Once the initial shock and trauma associated with the diagnosis of a long-term disability subsides, there is the gradual realization that the cost of long-term skilled nursing care is simply not sustainable for many families. The approximate cost for nursing home level care in central New Jersey currently ranges between $11,000.00 and $14,000.00 per month and has been rising steadily for many years, so this concern is quite real.
FIRST THE GOOD NEWS: For many couples facing such difficult circumstances, the good news is that Medicaid currently pays for long-term care costs when other economic resources are depleted. Better yet, the family home (called the “primary residence”) is exempt from consideration so long as either spouse is capable of living in the home, desires to do so and can afford to pay for his or her own living expenses. Unfortunately, the resources available to the well spouse (called the “community spouse”) may not be sufficient to maintain lifestyle or home ownership, and the imposition of a Medicaid lien may well prevent the family home from being passed on to the next generation.
THE REST OF THE STORY: The first problem for many couples is that Medicaid imposes strict limits on both the income of the ill spouse and the “economic resources” (i.e., bank accounts and other assets) that can be held by either spouse. For example, after the required Medicaid “spend down” no more than $2,000.00 can be held in the ill spouse’s name. In most cases, Medicaid will also require a significant portion or all the ill spouse’s income to be spent on nursing home care. Therefore, when the dust settles, many well spouses find it nearly impossible to maintain their accustomed life style or even to retain home ownership with the limited resources and income available to them after their husband or wife has qualified for Medicaid assistance.
What About my Children?
Although Medicaid won’t take the house or force its sale so long as either spouse is residing therein, it is essential to understand that Medicaid does take a lien against the house. In most cases this means that, when both spouses pass away or can no longer live in the home, the family home needs to be sold and the proceeds will go to Medicaid rather than to children or other loved ones. There are ways and means of sheltering the family home and other resources so that they can be passed down to loved ones, but careful planning and a thorough knowledge of complex Medicaid regulations and various tax considerations is essential. Furthermore, Time Is Of the Essence as Medicaid’s 5 year “look back period” must be factored into any effective long term care plan!
Don’t Make Matters Worse By Acting Without Proper Planning
Fearing the loss of the family home and a life’s savings, many clients immediately consider transferring or “deeding” the house to their children. Without proper planning and a full understanding of Medicaid regulations and tax laws, however, such transfers can have severe and negative consequences. Aside from the loss of control and home ownership, such transfers can result in:
- The imposition of crushing, unnecessary capital gains tax consequences
- Subjecting the family home to marital or spousal claims if a child gets divorced
- Subjecting the family home to claims by a child’s creditors
- The loss of senior tax breaks, homestead rebate eligibility and the like
- The loss of Medicaid coverage due to the imposition of a Medicaid “penalty period” of ineligibility if a Medicaid application is filed within the next five (5) years.
Back to the Good News
There are planning options available which greatly enhance the probability of being able to secure financing for long- term care and still be able to pass on the family home and other assets to children and loved ones. Better yet, with proper planning, these cherished legacies can be protected from claims of creditors; spousal claims if a child is later divorced, gambling problems or other addictive behaviors and the like. Because of Medicaid’s 5 year look back period, however, the odds of being able to achieve these cherished goals are greatly enhanced by acting sooner rather than later. While some limited forms of planning may still be available when a crisis hits, the focus at that point is often on “spend down” options rather than maintaining lifestyle and securing a legacy for one’s children. Furthermore, the cost of having a crisis management plan designed and implemented is much higher as is the risk that such a crisis management plan will not achieve its desired goals. In short, it is much better to design and implement a long term care plan well before you see the need for crisis planning or the need to apply for Medicaid assistance!