Estate Planning, Business Organizations, and Asset Protection

Long Term Care

Written By: Jeff Skoubye

Even though you may not be terminally ill, if you require long term care in a nursing facility, the costs could deplete your estate. In the past it was common practice for parents to transfer their property to their children relatively early in their lives in an attempt to avoid those assets being available to pay for their long term medical care. This practice, however, causes numerous problems:

  • A loss of control in the parent and may require the parent to go to their children in times of need;
  • increased capital gains taxes to the children when they sell the property or asset after the death of the parent.
  • exposure of the parent’s assets to the creditors of the children.

Under recent legal changes, this practice may also cause a loss of federal benefits under Medicaid unless properly planned.

Medicare is federally sponsored medical insurance for the elderly and pays for medical treatment regardless of your financial situation. Taxes have been withheld from your pay through the years to pay for this coverage. However, Medicare does not cover long term care in nursing care or custodial facilities.

Medicaid is a federally funded WELFARE program administered by participating States. It is designed to pay for medical treatment, including long term nursing care or custodial care, for the very poor.  It is funded by our tax dollars. Medicaid benefits are available only to those who qualify financially in both income and assets. Due to the large number of individuals purposefully impoverishing themselves to qualify for these benefits, the federal government has passed new legislation in an attempt exclude such individuals.

(1) Transferring Assets: Medicaid will deny eligibility for a period of time to any person who transferred an asset out of their estate within the “look back period.” The look back period is now 5 years. The ineligibility period now runs from the time of application for medicaid benefits for the number of months equal to the value of the disposition divided by statutory nursing care costs. (e.g. If a person transfers assets worth $120,000 and the statutory nursing care costs are $4,000 per month, then the individual would be disqualified from Medicaid coverage for a period of 30 months [120,000/4000=30].) There is no limit on the disqualification period.

(2) Other Problems with Transferring Assets: Transfers of assets to avoid medical costs from your estate can cause numerous other problems besides ineligibility. These problems include increased capital gains tax on sale of the property, gift and estate tax consequences for transferring the assets, and exposure of the assets to others’ creditors.

It is my opinion that, in most cases, a person should maintain their assets for their own use and benefit during their lifetime. If all of their assets are used to care for them, then they can die having the peace of mind that they have provided for their own care. If they do wish to protect their assets, then appropriate insurance can be obtained to cover long term care costs.  Occasionally Medicaid planning may be appropriate for those trying to protect assets for their spouse’s use.