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ASSET PROTECTION PLANNING

FOR CHRONIC CUSTODIAL CARE AFTER AGE 65

NO BENEFIT TO THE ELDER:

Asset protection planning usually offers no benefit to the elder person; it is done mostly to provide  for loved ones, usually a spouse or children, sometimes at the expense of the elder who thereby limits his or her options for chronic care.  This is a choice made by the elder.

HOW IMPORTANT IS IT TO YOU TO PROVIDE AN INHERITANCE FOR LOVED ONES?

It depends upon how important it is to you to leave money to your spouse or children or persons close to you.

ARGUMENT AGAINST PLANNING:
Some people feel that they should pay for their own care, to spend their money on chronic care (at a nursing home or at home), even if they will have less at the end of their lives to leave for the comfort of their spouse or children, or other loved ones.  Some people believe that it is not morally right to ask the government to pay for their care when they have the means to do so. If you spend all your money on your care, then there is nothing left for your loved ones. Spouses are required by law to provide care for their spouses, but some children are financially well set and are not concerned whether or not they inherit from their parents. Each family is different. In addition, some people will never spend money on chronic care because they will die quickly -- we just don't know who that is.

ARGUMENT IN FAVOR OF PLANNING:
Other people believe that they feel strongly that it is important in their family to leave financial security for their spouse, or an inheritance for their loved ones. This is the category of people who should consider buying long term care insurance or doing asset protection planning so that they may qualify for government benefits to pay for their care. I think that insurance is the best choice unless your health will disqualify you or you cannot afford the premiums.  The second choice is asset protection planning.

How we plan:
Medicaid is available to people who have limited assets.  But additional assets can sometimes be saved by asset protection planning.

Under the Deficit Reduction Act  (effective February 8th, 2006) if you have given any asset away without receiving full compensation for it, you can be denied approval for Medicaid in the event that you need chronic care at home or in a nursing home.

Asset protection planning consists of techniques that preserve assets for loved ones, while at the same time qualifying you for Medicaid to pay for your chronic care, and while complying with the federal and state laws.

Many gifts (of houses and bank accounts) that were made more than 5 years prior to a need for chronic custodial care, are not counted as assets of the Medicaid applicant and do not disqualify the person from Medicaid.

House:
A residence house is given special consideration under the law and is not counted as an available asset under certain conditions but eventually (in some cases) becomes a countable asset and must be sold to pay for care or to reimburse Medicaid for care they paid for. 

As long as one spouse is living in the house it is protected, but eventually neither spouse is living there and it is by then an asset that must be used to pay for care in some cases.

Other Techniques to plan:
Purchase of insurance to cover or supplement your care for 5 years;

Evaluating and maximizing exempt assets such as a residence, automobile, personal property and renovations;

Real estate transfers, including buying life estates, gifting an interest in house to statutory qualified children, selling an interest in house to children with purchase money mortgage held by parents, reverse mortgage, home equity loans, et cetera. 

Irrevocable trust;

Irrevocable annuities;

Compensated transfers such as family contracts for care,

Retention or purchase of exempt assets, et cetera.

Purchase of a life interest in another's house;

In-family promissory notes.

Spousal refusal.

Laws change:
Unfortunately, there has been a lot of change in the Medicaid laws and we cannot anticipate what the future holds.  And, the old laws are not always grandfathered. 

BE WARY OF GIFTS:

If you decide not to do an asset protection plan, note that under the Medicaid law enacted in February of 2006, in the event that you give away assets (such as cash, a bank account or an interest in a house), you may disqualify yourself from Medicaid for a certain length of time, depending upon the value of the gift.

In theory even relatively small gifts to relatives could accumulate to disqualify you from Medicaid payment for nursing home care.