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“Protecting” Assets Means Giving Them Away

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Protecting assets with Medicaid pre-planning
You may be able to protect some of your assets from nursing home costs through Medicaid pre-planning.

“How can I protect my assets from Medicaid?”

I get this question a lot. The long answer is complicated, but the short answer is that you can protect your assets from being counted or taken away by nursing home or the government only if you’re willing to give them away legally and knowledgeably at least five years before you’ll apply for Medicaid. If you’d be comfortable giving your children the bulk of their inheritance now, and know they’d take care of you if you needed long-term care, then you’re probably a good candidate for Medicaid pre-planning.

I’m going to oversimplify the process so you can get the general idea of what “protecting” assets through pre-planning involves.

In Florida, having too many assets is what disqualifies most people from having Medicaid pick up part of the bill for nursing home care; having too much income is rarely an issue. So, those assets over $2000 (for a single person) have to disappear legally before a Medicaid application is submitted. For forward-thinking people, pre-planning may be an option – it’s less expensive than crisis planning and it generally protects more assets for your spouse or family than crisis planning can.

Medicaid penalizes an applicant for giving away any assets during the 60 months (5 years) look-back period prior to the Medicaid application date, but assets given away 60 months and 1 day prior to submitting an application are invisible to Medicaid; they won’t be counted as assets that are available to you for paying the nursing home bills. So, if your Mom is headed into a rehab facility (the kinder, gentler name for nursing homes) in the next month or two, and she gives away almost all of her assets to you and your siblings, Medicaid won’t pick up the tab until after your mother pays out of her pocket for a calculated number of months. Which means you children will have to pay the nursing home bills, using the assets Mom gave you. Because it’s DIY crisis planning (you didn’t consult with an attorney), unless Mom is dead in a couple of months, it’s unlikely many of her assets will end up with her children.

But suppose Mom read about the 5-year look-back period, and when she was in her 70s she gave away nearly all of her assets to her three children. She lived on her Social Security and believed her children would help her if she needed money for an emergency. One child, Tom, put his share of Mom’s money into a savings account in his individual name; another, Linda, put her share into a joint bank account with her husband; and the youngest, Harry, put his share into a brokerage account in his individual name but named Mom as the Transfer on Death beneficiary. What could possibly go wrong…?

  • Tom dies unexpectedly, and the bank account lands in probate because there was no joint owner or beneficiary. His wife, who never got along with Mom, inherits the account and moves away; or
  • Tom develops a drug or gambling problem and spends all of Mom’s money within a couple of years; or
  • Linda’s husband files for divorce and the joint bank account is considered a marital assets to be split between them; or
  • Harry invests in small-company stocks and other high-risk investments that are appropriate for him, but not his mother. He loses 40% of the money in the first year; or
  • Mom needs nursing home care 7 years after giving her assets to her children. She easily and quickly qualifies for Medicaid and settles into the nursing home. Then Harry dies unexpectedly, and Mom, as the TOD beneficiary, inherits what’s left in the brokerage account.  She’s immediately kicked off Medicaid and will have to pay out-of-pocket until the money runs out, and then re-apply for Medicaid; or…

You get the drift. Bad things happen to good people every day.

But what if Mom had met with an elder law attorney and decided to create an irrevocable trust to give her assets to instead? She named her daughter, Linda, as the trustee (the person who manages the assets), and named all three children as lifetime beneficiaries and also as death beneficiaries. Linda has complete discretion as to if, when, and how much principal to distribute to the three siblings while they’re alive, and she can even distribute interest and dividends to Mom to help make ends meet. (Refresher: Principal is the chunk of money Mom wants to protect, and interest and dividends are generated from that chunk of money). Medicaid doesn’t care what the children do with the principal they receive once it’s in their own bank accounts. If they want to spend it on Mom – or anyone else –  they can. However, Mom can never take the principal back out of the irrevocable trust and Linda, as trustee, can never distribute principal directly or indirectly to Mom; for example, Linda, as trustee, can’t cut a check from the irrevocable trust to the nursing home.

After 5 years, the assets transferred from Mom to the irrevocable trust are invisible to Medicaid, so Mom will qualify easily if she needs nursing home care. If a child dies, there are no issues because the trust document addresses what happens in that event. Linda’s divorce has no effect on the assets in the trust, either, because she doesn’t own them – the trust owns them. If Tom develops a drug or gambling problem, Linda won’t give him money to enable his addictions. The assets stay safely in the trust, and when Mom eventually dies, the assets go to her children without probate.

So, that’s a very broad and oversimplified explanation of what’s involved if you want to “protect” any assets from Medicaid. You must give up that which you wish to protect.

Give us a call at 941-444-5958 if you’d like to learn more about pre-planning for nursing home Medicaid.

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Ready to make sure everything’s in order for your loved ones in the event you become incapacitated or die? Give Manasota Elder Law a call at 941-444-5958. We’ll help you determine whether you’re all set, or whether there are still some things that need to be done to protect what’s most important to you … your family.