SAVING THE ROOF OVER YOUR HEAD

For most people, their home is their most valuable asset. So, it’s little wonder that when people near the age where long-term care becomes a serious concern, they begin to think about the possibility of losing their house to the ravages of long-term care costs.

In any given week, I meet with at least one person who expresses this concern to me and offers the “I-want-to-give-my-house-to-my-kids” solution.

Typically, the client is female and widowed. While transferring the home may be the solution to a problem for some, for others it may be a new and immediate problem. Poor advice can cost you dearly.

Long-term care is a very frightening subject. The fact of the matter is, long-term care can be very expensive, costing anywhere from a few hundred to $9,000 a month, or more, depending upon the type and extent of care that you receive.

If a person has some money, she will end up paying for this care with her own money. Eventually, she will expend all of her funds, at which point she will not only have problems paying for her care but for her food, clothing, and shelter, as well.

There is a way to insure against the cost of long-term care, that is, long-term care insurance, but a recent study has shown that the number of individuals purchasing long-term care insurance has changed very little in the past two years. This is somewhat surprising since the number of people selling long-term care insurance has increased dramatically during that same time period.

I have notice that the various states and the federal government – which in the past pushed long-term care as a viable solution to their overheated Medicaid budgets – have quieted down the long-term care insurance rhetoric. In my opinion, the problem isn’t that long-term care insurance is a bad idea or that it fails to live up to its promise of paying for the cost of long-term care. The problem is, most people tend to believe that the insurance costs too much and they simply cannot afford it.

So, this leaves the average person with two viable solutions to meeting the cost of long-term care: private payment and Medicaid, the primary government program that pays for long-term care. This also takes people back to their concern: Will they lose their house to the cost of long-term care or to Medicaid?

For instance, Dan Rather of CBS News had a piece this week about a woman in Nevada who, according to the trailer for the report, was losing her house to Medicaid after her husband’s death; the woman’s husband was the recipient of Medicaid. I was interested in this report not only because it dealt with an issue involving the Medicaid program but also because the trailer contradicted something I knew about the Medicaid program, that Medicaid does not force a surviving spouse out of the house in order to satisfy its lien.

It turned out that the woman wasn’t being forced out of her house. The State had merely informed her of the lien and the requirement that the lien be paid back at some point in the future. Typically, with a surviving spouse, the lien is paid back after the surviving spouse dies.

But Dan Rather’s report and my client’s questions do bring up an interesting issue: How does a person protect her house against the potential of long-term care costs and the Medicaid lien? There is no one stock answer, as there is no one stock person. A person’s circumstances could easily dictate a different solution.

Some might advise taking the house out of the elderly person’s name entire; transfer the house to the children. Yet, this type of advice could have significant tax consequences and could cause the elderly person significant damage. For example, what if her children decide to give her the boot or what if the children get divorced or have credit problems? The roof over mom’s head would be in jeopardy.

Some advise transferring part of the house to the children. Done improperly, this might cause less tax consequences than transferring the entire house and lesser damage, but the possibility for problems is still present.

Finally, there is educated advice, advice given to an individual from an attorney with knowledge of the tax, Medicaid, and other legal consequences of transferring the home. This advice might involve having the elder person retain an interest in the property and transferring the other portion of the property to a properly drafted Medicaid-friendly trust. It might involve transferring the entire house to such a trust. Heck, it might involve doing nothing.

In life, I have found, you get what you pay for. Cheap advice may be worth even less than you paid for it. This is a complex area, so seek advice from a specialist. There are solutions, just not one solution.