Local 1101 RMC Report: Protecting Your Assets, Paying for Long Term Care

This report is based on a talk by Marvin Anderman to a Local 1101 RMC Chapter meeting on May 24th, 2017. Everyone’s situation is different, and the rules in every state are different, so please take this report as a general outline. We strongly suggest you consult a lawyer or impartial financial advisor before making any decisions about transferring or protecting assets.

As we get older, we face the possibility of needing some kind of long-term care, whether from a family member, a home health aide, or assisted living or a nursing home. In 2017, the average nursing home in Long Island charges over $150,000 per year. New York City exceeds $144,000, and Westchester over $140,000. Medicare does not pay for most home care or nursing home care, unless it is short-stay rehab for a medical condition such as a stroke or broken hip, so the majority of long term nursing home residents exhaust their savings and then qualify for Medicaid.
Medicaid eligibility rules are set state by state and frequently change, and many senior residences and assisted living facilities do not accept Medicare or Medicaid. If you are paying privately for a home aide, that’s probably not covered either. In such cases you will have to pay out of pocket.
In the case of a nursing home or other facility or home care agency that accepts Medicaid, you will have to “spend down” nearly all your assets before you qualify for Medicaid. This does not include your house or, in many cases, your IRA or 401K, and there are protections for a spouse that vary state by state. Eventually, however, Medicaid may place a lien on the home or on these assets
Since the average nursing home resident’s stay is less than a year, this might be all you need to know if you have enough money to cover the cost for someone who is extremely ill. However, if you (or your spouse) live for a long time in a nursing home you will have to spend nearly all your assets before you qualify for Medicaid. Even after qualifying for Medicaid, almost all your income--pension, Social Security, or interest/dividends from an IRA--will count toward your monthly bill before Medicaid pays anything.
Before we get into protecting assets, here’s one important rule. Make sure someone in your family knows what benefits you are entitled to, where to find your important papers, and how to contact your former employer’s benefits department. The same applies to your spouse or partner. You can’t protect an asset if no one knows it exists. Discuss your plans with the important people in your family. It’s a good idea to make a will, even if you have named a beneficiary for everything, just to protect against surprises.  A will needs to be probated only if there are assets that will pass to another under it.
So how do you protect your home and savings? Here are some options:

  1. Consider buying long-term care insurance. This is probably the best option. If you are a New York State resident, relatively young and in reasonably good health, you can purchase long-term care insurance through the New York State Partnership for Long-Term Care. https://nyspltc.health.ny.gov. The plans are expensive, especially if you are over 70, and may not pay all the costs, but this is the best way to protect your assets. If you live in another state, investigate whether long-term care insurance is being sold and whether you meet the requirements.
  2. Give away your money. If you want to leave money to your children, for example, you can give it to them while you are alive. But when Medicaid is calculating your assets, they invoke a “look-back rule.” Right now the look-back period is 60 months, which means they count any assets you have given away within the past 60 months. They won’t go after your children for the money, but they will count it as part of your money. And if Congress succeeds in drastically cutting Medicaid funding, this look-back period may increase.
  3. Spend your money on medical and burial expenses such as a prepaid funeral from a reputable funeral home or a wheelchair ramp that you need.
  4. Sign over your house to your child/children while continuing to live in it. This can be a risky strategy since you cannot guarantee that they will outlive you. If they file for bankruptcy, have a money judgment entered against them or get divorced, you could find your home is owned by someone else. To avoid these issues, transfer ownership to another person that you trust, but make it subject to a life estate for yourself. This means you have the right to stay in the home, which cannot be sold without your approval, although you will have to pay for maintenance, real estate taxes and upkeep if you want to keep a senior exemption like STAR in NY State. Note that this strategy is also subject to the look-back rule for Medicaid eligibility purposes.
  5. Set up a Medicaid Trust. These are heavily advertised but may not be the best option for everyone. The Medicaid Trust involves transferring your home and possibly other assets into an irrevocable trust which will then be managed by a trustee or trustees of your choice. The trustee can be a child, friend, sibling, or anyone you trust, but not your spouse. Again, the assets in the trust are subject to the look-back rule, so you need to transfer the assets at the time you set up the trust. An irrevocable trust means you cannot take the assets back and no principal from the trust can be given directly to you or your spouse., but you can receive the income So, while you can remain in your home, you lose the use of any money placed in the trust, except for income. It is not clear whether you can set up a trust for a coop you own in every instance.  You should check to see whether your co-op permits transfers to a trust and what its rules are in that regard.

Setting up a trust should cost between $1500 and $5000. A properly drafted trust will allow you and your spouse to remain in the home, keep your STAR or other senior property tax relief, sell the home through the trustee so long as the profits remain in the trust, benefit from the capital gains exclusion, buy a new home for your benefit, use the assets for the benefit of your children, grandchildren, or other beneficiaries, protect your beneficiaries from creditors, and avoid probate for property in the trust and thus Medicaid estate recovery, in most instances.
Obviously, this is complicated and you should figure out whether it is worth it to you. Do you have significant equity in your house that you want to protect, for example, or are you carrying a large mortgage and/or home equity loan? Do you have significant assets that you don’t need to live on that you want to protect for future generations?  Are you comfortable with a family member controlling your trust assets? If the answer is yes, be sure to consult a qualified lawyer for advice for your particular situation.