Many of the people who come to see me are concerned about protecting their assets from the costs of long-term care, such as care in an assisted living residence or nursing home. In this area, assisted living residences cost between $4,000 and $8,000 per month. Nursing homes cost between $8,500 and $12,000 per month, so the concerns that these people have are legitimate.

The advice that I give to a potential client depends upon whether or not there is an immediate need for long-term care or a potential future need. For instance, the advice I might give to a child who has a parent in a nursing home or about to enter a nursing home differs from the advice I would give to an older individual who is in reasonably good heath and is living at home without the assistance of anyone else. Today, I am going to write about a standard piece of advice that I give to individuals in the latter group, that is, those living at home who do not currently require the assistance of others.

Let’s assume that Mrs. Smith is 75 years of age and is in reasonably good health for her age. She owns her home, worth $300,000, and some cash assets worth approximately $150,000. Mrs. Smith purchased the home 30 years ago with her husband, who has since passed away. Her basis in the home is $100,000, which means that if Mrs. Smith sold her home, she would have $200,000 of realized gain on the sale of the home.

Mrs. Smith comes to see me about drafting a last will and testament, powers of attorney, and living will for her; however, during the course of the interview process, she mentions to me that she is worried that she may require long-term care some day and she is concerned that her home will go to pay the nursing home.

Mrs. Smith wants to transfer her home to her four children in order to protect her home from the costs of long-term care. She asks me what I think of her idea of transferring the home.

If Mrs. Smith were to transfer her home to her four children without reserving any rights in the property for herself, she would expose the house to many potential problems. For instance, let’s assume that her son Jim dies before her, that her daughter Mary gets divorced after one-fourth of the home is transferred to her, and that her son David causes an automobile accident and is sued for the damages he caused.

Each one of these issues causes a problem for Mrs. Smith. When her son Jim died, his one-fourth of the house would probably pass to his wife, an in-law of Mrs. Smith. Jim’s last will and testament probably left the entirety of his estate to his wife, so his wife receives his interest in Mrs. Smith’s home. When Mary gets divorced, her estranged husband may make a claim for her interest in the house. While the estranged husband may ultimately lose his bid for an interest in the house, his claim will cause tremendous angst for Mrs. Smith. Finally, if David is sued as a result of the accident he caused and judgments are entered against him, those judgment creditors can attach Mrs. Smith’s house with liens to the extent of David’s interest in the house.

Ultimately, Mrs. Smith might lose her home. So, what do I think about simply transferring the house to the children? I think it’s a bad idea unless there is some reason not immediately apparent for structuring the transaction in that manner.

Many lawyers, including many elder law attorneys, leave Mrs. Smith with a life estate in the property and transfer the remainder of the property to her children. While this form of transfer does ensure that Mrs. Smith will have the right to live in the home for the remainder of her life, an outright transfer of the house to the children still exposes the house to all of the problems discussed above.

So how do I structure the transaction? Typically, I suggest leaving Mrs. Smith with the right to live in the house and place the children’s interest in the home in an irrevocable trust with two of the children as trustees and all four of the children as beneficiaries. By doing this, I protect Mrs. Smith’s home against all of the potential problems mentioned above. I also preserve Mrs. Smith’s ability to claim certain tax deductions on the sale of the house and preserve Mrs. Smith’s right to claim the homestead rebate.

Bottom line, the home is removed from Mrs. Smith’s name for Medicaid purposes, starting the clock running on Medicaid’s five-year lookback period, yet Mrs. Smith retains many of the benefits of ownership.