Preparing & Preserving your Assets: Ten Common Mistakes
Protecting your life’s work and accumulated wealth is top of mind for aging people as they start to think about preparing for the possibility of needing care at some point in their life. There are great benefits to discussing options and planning early (while capacity is not an issue) so you and your loved ones can have peace of mind knowing they are prepared for whatever disability may come.
The Ten Most Common Mistakes:
- Transferring all assets to children or other relatives. This almost always results in a penalty period of ineligibility that begins after application for Medicaid and other public assistance. Tax consequences can be significant. Make gifts only with legal counsel.
- Selling the family home to pay for nursing home costs. This is often not required, yet many still believe that the home must be sold to pay for care.
- Relying only on a will or living trust. A will has no effect until approved in probate proceedings after death. A living trust is preferable in most cases, but generally does not protect assets from government claims for payback.
- Relying on Medicare or health insurance. Neither one pays for the cost of long terms care in a nursing home or assisted living. Costs typically run between $5000 and $6000 and most families will quickly run through their life savings.
- Putting a family member on accounts as a joint owner. This subjects the account to the risks associated with the joint owner’s life – divorce, bankruptcy, lawsuit. This can also result in disqualification periods for Medicaid eligibility. There are better ways to avoid these legal problems.
- Using a pre-printed form for power of attorney. These documents may be useful for small accounts and simple transactions but usually lack the express language needed for more complex affairs and for Medicaid eligibility transactions. Have one prepared for your situation by an elder law specialist.
- Using a form will or living trust. These are cheap and available from bookstores and internet. But they are almost always not suitable or correct for your situation. Lawyers earn substantial fees “fixing” these do-it-yourself wills and trusts.
- Purchasing a “Medicaid annuity” or other financial products to shelter assets. Use caution when relying on the advice of “senior advisors” who may not understand your situation.
- Applying for a guardianship or conservatorship. These proceedings to handle a person’s incapacity are costly, time-consuming and restrictive. With proper planning, these can be avoided in most cases.
- Ignoring Medicaid estate recovery. The state can and does proceed with liens and other proceedings to recoup benefits paid out on your elder’s behalf. In appropriate circumstances, this can be avoided with proper planning.
Note: Laws governing Medicaid eligibility, Medicaid asset recovery and estate preservation are complex and vary between states. A qualified Elder Law Attorney can help you avoid these common mistakes.
Q: Medicare paid for Dad’s hospital after his stroke. Won’t Medicare pay for nursing homes, too?
A: No. Medicare and Medicaid are two different programs. Medicaid may pay for long term care if your dad qualifies. Medicaid rules are complicated and change over time.
Q: Mom can’t take care of Dad at home anymore. To qualify for Medicaid, will they have to sell their house and spend down all their investments?
A: Your parents residence is exempt, so they can keep the house. Depending on the value of their investments, your parents may have to “spend down” some assets. They can spend down “dumb” or they can spend down “smart.” With help from an experienced elder lawyer, they can spend down “smart” or even avoid a spend down entirely.
Q: Will Medicaid take my parents’ house or put a lien on it?
A: No. Medicaid does not put a lien on the house. However, Medicaid may make a claim against your Dad’s estate for payback after he passes away. An experienced elder lawyer may help your parents with legal ways to avoid a claim entirely or at least delay the claim until after your Mom passes away.
Q: Is it legal for Mom and Dad to retitle or transfer their property to me so they will qualify for Medicaid?
A: Actually, it is perfectly legal, but it must be done very carefully, because Medicaid recipients will face a “period of ineligibility” based on the timing and the amount of the gift. There is a 5 year “look back” that applies in ways you may not expect. Don’t try this at home.
Q: Mom and Dad had their wills done years ago. Is there anything else they should do to plan ahead for long term care?
A: Yes. Here is their homework assignment:
- Get a durable power of attorney from an experienced elder lawyer so Mom and Dad can legally sign documents for each other. For transactions to obtain Medicaid eligibility down the road, special provisions are required. A cheap power of attorney from the stationery store may be “legal,” but it may not work.
- Get an advance directive so Mom and Dad can legally make end-of-life health care decisions for each other.
- Consider long term care insurance.
- Plan ahead with an experienced elder lawyer to preserve their assets for their care.
Planning for Disability
No one likes to think about the possibility of their own disability or the disability of a loved one. However, statistics are clear that we should all plan for this possibility. The US Department of Health and Human Services estimates that 70% of Americans age 65 or older will need long term care during their lifetime. Not surprisingly, the likelihood of needing long term care increases with age. This is significant because Americans are living longer and care costs can quickly consume financial resources. A recent Harvard study indicates that 69% of single people and 34% of married couples would exhaust their assets after just 13 weeks in a nursing home.
There are four ways to pay for long term care:
- Private pay. Though not realistic for everyone, this option offers the greatest number of choices in care.
- Long term care insurance. If medically eligible and able to afford premiums, this is a good way to pay for some or all long term care costs.
- VA Benefits. Many veterans and their spouses are unaware that pension benefits may be available to them. Benefits may not cover the entire cost of care, but can help significantly.
- Medicaid. While not accepted by every care provider, Medicaid benefits can cover the entire cost of care for those who qualify. Always consult an experienced elder law attorney before beginning a Medicaid “spend-down.”
Here’s what you can do to be prepared:
- Discuss options and plan early (while capacity is not an issue) so you and your loved ones can have peace of mind knowing they are prepared for whatever disability may come.
- Be aware of heightened health risks for those who work long hours caring for a spouse or family member, and include a paid care provider if possible.
- Investigate insurance and VA benefits options that may be available.
- Consult an experienced elder law attorney, who will create a plan to safeguard personal wellbeing and property in the event of disability, and to allocate and protect assets that may be at risk of being depleted by out-of-pocket health care costs.