I have so many people who come to me interested in protecting their assets in the event they require long-term care at some point in the future. The most common asset that a person wants to protect is his home. The home is often the most valuable asset that a person owns. The home is also the asset for which people feel the greatest connection. Home is where the heart is, they say, and that saying has a lot of truth to it.
Long-term care takes many forms nowadays. There are home health aides who provide care in your home. Assisted living residences, which try and offer a home-like setting for the long-term care that they provide, and nursing homes, which are more hospital-like than assisted living residences. Depending upon the type of care a person is receiving, long-term care can cost anywhere from $2,000 to $12,000 a month.
The primary methods of paying for long-term care are private payment and Medicaid. Private payment is simply you paying for the care with your money. Medicaid is a government health insurance program for needy individuals. Many people who require long-term care would like to qualify for Medicaid benefits, so they can stop private paying for their care.
In order to qualify for Medicaid, a person must have a very limited amount of assets. For this reason, people come to me and ask how they can “hide” their assets if they ever need long-term care. My answer to this is, you cannot hide your assets, but if we transfer your assets early enough, Medicaid won’t be able to see your assets simply because they cannot look at the transfer you made.
Medicaid is only permitted to look back five years for transfers the person may have made when he files an application for Medicaid benefits. This five-year period of time is called the “look back period.” In short, what the look back period means is that Medicaid is permitted to see all financial transactions that a person made during the five-year period of time prior to the date he applies for Medicaid benefits.
Any gift that the person made during the look back period will subject the person to a period of ineligibility for Medicaid benefits. The more valuable the assets the person gave away during the look back period, the longer the period of time for which the person will be ineligible for Medicaid benefit.
Any gifts that occurred more than five years prior to the date the person applies for Medicaid benefits cannot be scrutinized by Medicaid and cannot result in a period of ineligibility for Medicaid benefits. So, for instance, if Mr. Smith transferred $500,000 to his son on November 1, 2008, and waits until November 1, 2013, to apply for Medicaid which is sixty-one months after the 2008 gift, then Medicaid cannot punish Mr. Smith for the 2008 gift of $500,000. The gift is outside the look back period.
When a client comes to me and tells me that he wants to gift his home (or any asset), I inform him about the look back period. If the client is healthy, the fact that Medicaid can look back five years may be wholly irrelevant to him. He doesn’t anticipate needing care in the next five years anyway. Or, if he is transferring his home but is retaining a fair amount of other assets in his name, then the fact that the home transfer may count against him for the next five years may be irrelevant as well, because he has sufficient other asset to pay for his care if he requires care in the next five years.
When transferring the home, I typically recommend that the client transfer his home to an irrevocable trust, while continuing to retain the right to live in his home for the remainder of his life. This technique accomplishes many of the goals that most clients have.
For one, it guarantees the right of the client to live in the home for the remainder of his life. For another thing, the trust protects the home from any issues that his children may have, such as death, divorce, or credit problems. For instance, because the home is owned by a trust, and not the children directly, if a child is sued, the child’s creditors will not be able to attach the home because the child doesn’t own the home; the home is owned by a trust of which the child is a beneficiary, but not by the child.