Part two of this article discusses the last five of 10 common misconceptions relating to planning for the payment of long term care.
Misconception #6. The best way to protect my home in the event of a long term stay in a nursing home is to transfer the house to my children, and retain life use.
A common, simple practice is for individuals to transfer their home to their children and retain life use under the mistaken belief that once this is done the home will be protected for that individual’s children should that individual require long term care.
The problem with this technique, penalty period and look back period Medicaid rules aside, is that if the individual does require long term care and does become eligible for Medicaid, and if the house is sold during the lifetime of that individual, not only are there income tax problems, the value of the life use comes back to the individual on Medicaid and must be spent on that individual’s care before re-entering the Medicaid program.
Misconception #7. Making gifts to my children is simpler, and therefore preferable, to gifting to a trust to protect my assets.
Very often, individuals make gifts to their children for many reasons; one may be to make sure that in the event they need to enter a nursing home, that the assets given away are not required to be spent for the exorbitant cost of a nursing home stay. Again penalty period and look back period rules aside, this is true.
The problem is, once those assets are given away to the children, they are almost never retrievable. If one or more of the children has a legal problem of their own, whether it be bankruptcy, creditor problems, tax problems, divorce or anything else, the assets that have been given away to that child or children are subject to those legal problems.
A better practice would be, instead of giving these assets outright to the children, establishing a Medicaid qualifying trust so that the assets do not pass to the children until the death of the individual who is establishing the trust.
Misconception #8. I have already completed a comprehensive estate plan with an attorney. Therefore, I am sure that that plan provided for protection of assets in the event of a long term stay in a nursing home.
Many individuals already have comprehensive estate plans in place, including wills, powers of attorney, health care proxies and possibly trusts. Many individuals believe that by putting together this plan, they have also provided for asset protection in the event of a catastrophic illness requiring long term care. In many cases, this is not true.
Estate planning and long term care planning are completely different. Therefore, if an estate plan has been done, and long term care planning is desired, the planning documents should be reviewed to determine if long term planning has been done, and if not, whether it is appropriate.
Misconception #9. I am married. Therefore my spouse may act on my behalf should I become incapacitated.
Very often married couples think that because they are married, they do not need to have powers of attorney or health care proxies to each other because they have the authority as the spouse of the individual to act on that spouse’s behalf. This is not the case.
Therefore, it is important, even in a married couple situation, to have health care proxies and powers of attorney to each other, and it is probably also a good idea to have an additional power of attorney to someone else, possibly an adult child, and to have a successor health care agent to the surviving spouse.
Misconception #10. My mother is already sick and either in a nursing home or entering one. Therefore, no asset preservation planning is available.
While it is somewhat complicated, there is planning that can be done “at the nursing home door.” Consultation with an expert in the area of Elder Law is necessary if this type of crisis planning is to be successful.