What Did You Do for Your Parents?

What did you do for your parents?  This is a question that some people ask me during a consultation appointment.  I think it’s a smart question because what a person would do for himself or his family is indicative of what he believes is the best advice.

My mother lived to be ninety-four years old.  (Well, three weeks short of her ninety-fourth birthday, but I think she earned the ninety-four.)  For the last six years of her life, my mother lived in a nursing home and received Medicaid benefits.  Medicaid paid for the cost of her care for all those years.  Had Medicaid not paid for her care, my parents would have never been able to afford her care and her care certainly would have bankrupted my father.

Despite being a Medicaid beneficiary, my mother spent those six years in the nicest nursing home I’ve ever visited.  She received outstanding care.

My father is still alive.  He’s ninety-two years old.  He has been in a nursing home for the past year.  He, too, is in one of the nicest nursing homes I ever visited.  As with my mother, my father is a Medicaid beneficiary.  Medicaid pays for the cost of his care.

So, what planning did I do for my parents that permitted both of them to qualify for Medicaid and both of them to spend the last years of their lives receiving the highest level of care in the world?

The first thing that every good plan involves is well-drafted estate planning documents.  If you read my column regularly, you know that I do not believe that all estate planning documents are the same.  I put particular emphasis on the concept of well-drafted documents.  So, what are the well-drafted estate planning documents that I drafted for my parents?

A last will and testament is important.  If you own assets or have young children, you should have a well-drafted Will; however, as I always say to my clients, “A Will is for other people because no one is looking at your Will until after you die.”

More importantly, I advise my clients to have a well-drafted financial power of attorney and advanced health care directive.  I have reviewed hundreds of financial powers of attorney and not all powers of attorney are the same.

When you draft a power of attorney, you are the principal and the person you name to make decisions for you is your agent.  An agent can only do for the principal what the power of attorney document says the agent can do, so you want to ensure that the power of attorney document is very comprehensive and covers all types of financial transactions.

The power of attorney must specifically permit the agent to gift the principal’s assets in order for the agent to have the authority to make gifts of the principal’s assets.  Since almost all Medicaid planning involves gifting of assets, the power to gift is one of the first powers I look for when reviewing a power of attorney document.  If the power of attorney does not permit gifting, any type of Medicaid planning is dead in the water.

I also advise clients to have an advanced health care directive so that family members can make health care decisions for the client and access the client’s health care information.

Around the age of seventy, I advise clients to begin transferring assets out of their name to the name of their children.  Most people who need long-term care, need long-term care in their eighties.  The Medicaid program has a five-year lookback, meaning that when you apply for Medicaid benefits, they punish any gifts that an individual made in the five years preceding the date of their Medicaid application.

If you give assets away when you are around age seventy, by the time you are eighty, more than five years would have elapsed, so the Medicaid office cannot punish you for the gifts you made.  You will then qualify for Medicaid benefits when you need those benefits.

So, what does giving assets away mean?  The most common asset that people give away is their house.  Typically, I advise the client to retain life rights in the house and to transfer the remainder of the house to an irrevocable trust for the benefit of their children.  This gets the house out of their name and starts the clock running on the five-year lookback.

If you follow this advice, you will be well on your way to setting yourself up for excellent care in your twilight years.  It’s what I did for my parents.