The most difficult conversation for families to have concerns money. It’s especially difficult when one party is getting up in age and has to start thinking about their future and the future of their loved ones as it concerns their assets.
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It’s hard to start revealing one’s income and savings when they’ve been used to keeping things to themselves for most of their life. Sometimes couples have never talked about these things; scary but very true.
Unfortunately, health issues can occur at any time and the possibility of being unable to live and take care of oneself might be in jeopardy. It might mean moving into assisted living or a nursing home. Without protecting assets and making moves early most families are set up for a major fall at the most crucial times.
People over 65 years of age need to know a few things. One, your insurance won’t cover all, or most, of your costs if you have to move into either of these types of facilities. At least in assisted living Medicare will still cover your health care and if you have secondary insurance you’ll be covered in full. If you go to a nursing home Medicare will only cover your first 100 days.
After that, all payments come out of your assets or Medicaid, and if Medicaid is even going to be involved it’s going to mean most, if not all of your assets will have to be liquidated until you, the patient, only has around $2,000 left. There are qualifiers here and there, but this is the worst case scenario.
Not much to live on is it? That’s only for the patient; life could be bad if there’s a spouse who isn’t properly taken care of, and if you’re alone your children won’t be able to help you much if these issues aren’t addressed way in advance.
When the Deficit Reduction Act of 2005 was passed, it set a standard of going back 5 years to see where assets have been moved or spent. What this means is that if all protections aren’t in place longer than 5 years the government can file claims on most money or assets that were moved during that time period. This means it’s really important that these issues be addressed way in advance of any possibility of needing assistance from the government.
Below are 7 things we feel should be addressed with older family members. It’s going to take a level of trust and compassion to get some family members talking about it but it’s important to have the conversation.
1. Joint Checking & Savings Accounts
Being listed on someone else’s bank account allows those funds to be protected if the need arises for nursing home coverage, but it comes with a few caveats. The first is that the other person is now allowed to withdraw money from the account, so the senior has to have absolute faith in who they’re adding to their account. The second is if the second person never adds anything to the account and Medicaid can prove it, then they can lay claim to it. The third is the safest but could be the most cumbersome until one member is moved to a facility. This involves setting up the account so both members of the family have to sign checks for them to be processed. This is considered as the parent giving a gift to the other person, and in that case the funds are protected.
There’s still a major benefit to this. The other person is entitled to spend half of the money for expenses, and a few other things that aren’t covered under Medicaid. For instance, if a spouse is listed on the account and spend downs are necessary (amount of money the family has to pay before Medicaid makes its payment), the spouse can spend some of that money on items such as cars, and it reduces the amount needed to get down to Medicaid levels. The spouse or other person on the account can also use some of the money to pay off outstanding debt such as credit cards, or the mortgage of the house if it’s not already paid off.
2. Gifting Investments Early
If the senior has a nice sized portfolio or other major assets, it makes sense for them to donate some of those shares to their spouse or children if their intention was to make sure they got something. For instance, parents can gift their homes to their children and still live in the house. If one or both of them ends up having to move into either assisted living or a nursing home, the house can’t be used to figure out medical expenses as it relates to Medicaid.
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3. Make Sure Real Estate Is In More Than One Name
We’re still in a position in history where many homes only have one adult’s name on the mortgage. In states like California, which has community property laws, this isn’t a problem for the spouse but in other states it could be a problem that needs to be dealt with.
While there might be only one name on the mortgage, it turns out that if a spouse or the name of other relatives is on the deed then it becomes protected property, as it’s considered as a gift in the eyes of the law of most states. It’s smart to do this as far in advance as possible to beat that 5 year requirement but in some states, when the person being qualified for Medicaid is considered as still in control of their faculties, it’s possible to transfer ownership in order to become qualified for Medicaid earlier.
If one spouse begins showing signs in advance, it makes more sense to transfer ownership totally to the other spouse so that it eliminates the potential of Medicaid coming back and putting a claim on the property when the other spouse passes away. It also supports the move of adding dependents to the deed to protect the property even more.
4. Set Up Irrevocable Trusts
By most standards, setting up an irrevocable trust is a good way of protecting assets. What this means is that all ownership and assets of a person are transferred to a trustee who then manages it all on behalf of that person. The trustee doesn’t have to be a family member, which also helps protect the assets because they can’t spend any of the money on themselves, thus they can’t be sued to pay anything by Medicaid. It can be someone the person trusts, and as an extra layer of protection they can establish their bank as the co-trustee.
The problem with an irrevocable trust comes with the caveat that the money is basically frozen for use as it involves using some of the equity for living expenses and other items from the surviving spouse. If there’s only one person involved then this works out better.
5. Create A List Of Spendable Assets
As previously mentioned, there are certain things that the spouse not going into assisted living or a nursing can spend money on to not only help protect some of the assets but to help the potential patient get into either of these types of facilities quicker if Medicaid needs to be involved. We mentioned paying down on the mortgage and buying a new car as a couple of things that can be done, but they’re not the only items. Look at our list below of some other things you can do:
* paying off a mortgage
* making repairs to a home or buying a new one
* fixing up your car or buying a new one
* home improvements/appliances
* paying for more care at home
* medical bills/pharmaceuticals
* prepaying funeral expenses
* medical services not traditionally covered by Medicaid (full dental work, feet, eye services, etc)
* bank loans
* caregivers (although they can’t be paid until they’ve actually provided the services)
* transferring assets to a disabled dependent
* transferring assets to a child who’s lived with you for at least 2 years
This isn’t a comprehensive list and it’s not valid in all states so it’s best to check to see what types of things your state allows.
6. Power Of Attorney
This is important in more ways than one. Giving someone the power of attorney helps to protect you if you suddenly become incapacitated, regardless of assisted living or nursing home considerations. This allows them to make decisions for you if you can’t do it for yourself. A medical tie in with this is naming someone as your health care proxy so they can make medical decisions for you in the same instance.
Both of these protects patients in emergency situations, yet allows them to continue making decisions for themselves as long as they’re capable. Once again, the person given these responsibilities doesn’t have to be a family member, which works best when there are multiple siblings and the possibility that there could be family strife when it comes to the handling of assets. Also, with a power of attorney the person can decide just how thorough their responsibilities are allowed to be, so that they don’t supersede a will or overstep their authority.
7. Hire An Elder Care Lawyer
The most important step for everyone is to work with legal representation with expertise in this area. Since each state’s law can differ, they’ll offer the most protection in making sure things are done right and that no state laws will be violated. They can also offer information on things this article didn’t cover such as long term health insurance, annuities, revocable trusts, advice for home care in some instances (which could save some money) and recommendations for hospice care, along with all the things we covered above. If there’s any consolation here, it’s that any fees paid to them are also covered as a spend down.
