Our office receives many calls from concerned loved ones and family members wondering if or when they should start Medicaid planning. The answer: It is never too early or too late to discuss the planning options available. Below is one example of the many types of calls we get every day where we advise clients that Medicaid planning is an option right now.
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Mrs. Brown is an 81-year-old widow experiencing short-term memory loss. She is still able to live alone in her own home. Her income is $750 a month, she has a home worth $135,000 and other assets of approximately $60,000. She heard from a friend that she should give away all her assets now to her kids just in case she would ever need to go to a nursing home. Her friend told her that so long as she gives everything away more than five years before moving to nursing home, she’ll be able to qualify for Medicaid without having to spenddown any of her assets.
Unfortunately, there are many problems with the advice Mrs. Brown’s friend gave her. First, Mrs. Brown may need nursing home care in less than five years. Due to this large transfer being made within the five year look back period, she will now be ineligible for Medicaid and will have no funds to pay for her own care. Once the money and house are transferred to her children, those assets actually belong to the children – no strings attached. Even if the children are trustworthy, and would be willing to give the money back if Mrs. Brown needed nursing home care, once the assets are in their names, the assets are subject to their creditors. One of the children could be sued or go through a divorce. Since the assets are in the children’s names, a lawsuit, tax problems, or a divorce could easily wipe out mom’s life savings, as well as leave her without her home.
Also, keep in mind that Mrs. Brown may never need nursing home care. Rather, she may need to make a move to an assisted living facility. Medicaid does not always cover the cost of care in an assisted living facility. Therefore, it’s important that Mrs. Brown hang on to her assets while she’s still relatively healthy so she can have the freedom and independence to pay for the level of care she needs when she needs it.
In this scenario, we would advise Mrs. Brown to get the proper estate planning documents in place so her children could act on her behalf in the event of incapacity, and to avoid probate in the event of her death. Depending on the family dynamics and Mrs. Brown’s prognosis, we may advise some of type of gift trust planning.