As we age many people will require more than just periodic medical care. This is usually with activities of daily living such as bathing, dressing, getting around, eating or supervision due to dementia, to name a few examples. Care may be provided by in- home caregivers, assisted living facilities or a nursing home, depending on the level of care needed. This assistance presents additional costs which can be very expensive. Traditional long- term care insurance is like regular health insurance or auto insurance. You pay a monthly premium for a benefit if you need it. If you don’t need it you don’t get your money back and that is why they are sometimes called use it or lose it policies. Normally, policies will have a total benefit cap (you can outlive the benefit) and be subject to periodic price increases. However, if assistance with two or more activities of daily living are needed, it will pay for care whether at home or in a facility.
Asset care is an alternative to traditional long- term care insurance. Using existing funds, it offers the advantages of an asset that grows and can be inherited by your beneficiaries if not used; has a long -term care benefit that can cover both spouses, has lifetime care option available; provides tax advantages and has no ongoing premiums unless you elect the lifetime coverage rider (and then the premium for the rider is contractually guaranteed and will not go up). This is better alternative for those who have retirement accounts or investment /savings accounts. A final feature worth mentioning is the ability to get your money back if you want or need it.
Probate is a court proceeding to handle things when someone passes away or becomes incompetent or incapacitated. The probate court handles matters like guardianships and conservatorships for those who need someone to manage them and their money if they become incompetent. The probate court also administers estates when someone passes away. If you have no will, it is called an estate administration. If you do have a Will, probate is designed to insure that the assets you own in your name at death pass correctly to your heirs. It is subject to court rules and procedures and of course costs time and money. Often, it can be a troublesome process depending on family dynamics and the complexity of the estate. Probate can be avoided entirely by using trust based rather than will based planning and by having a power of attorney and advanced directive for healthcare. Click to watch a video to learn more about Probate in Alabama.
A Durable Power of Attorney is a legal document that gives someone else authority to act legally on your behalf. A durable power of attorney means that the authority for the other person to act is still valid even if you later become incompetent or incapacitated. The power of attorney authorizes the other person to do anything you authorize them to do including cash checks, pay bills, sell property among other things. It is a a very important part of even the most basic estate plan.
An advanced directive for healthcare is a legal document that gives directions on what to do regarding your end of life decisions if you are not able to make those decisions. The document typically contains a living will and a medical power of attorney. In the living will, you state your wishes regarding end of life medical decisions like whether you want to be on a respirator or feeding tube. The medical power of attorney authorizes someone else to make decisions and carry out your wishes if you are not able to do so.
A Will is a legal document that spells out your final wishes including what to do with your property when you pass away. A will only governs what you own in your own name when you pass away. All property that passes through your will must go through the probate court. If you do not have a will, the State of Alabama decides what happens to your property when you die. A will does not go into effect until you pass away.
There are only 3 ways to pay for long term care: you pay out of pocket, long term care insurance pays, or the government pays. Most people pay using their life savings because they do not have long term care insurance and do not qualify for the government program that pays for nursing home case, Medicaid. Without planning, you have to spend your life savings before you can qualify for Medicaid. Medicaid is the government program that pays for nursing home care, not Medicare. However, qualifying for Medicaid can be difficult so it is important to plan ahead.
Unless you have an adequate amount of long term care insurance, you will have to pay for the nursing home using your savings, home and other property. All of those assets are at risk. If you want to protect your assets from the nursing home, you have to plan ahead. To protect your assets, you have to do “Medicaid planning”. Medicaid has a 60 month look back from the time you apply so you have to get assets transferred out of your name as soon as possible. Transferring those assets to an asset protection trust is a great way to do so.
When you apply for Medicaid to pay the nursing home, they will look back 60 months from the date you file the application to see what assets you had during that time. You will have to show Medicaid what you did with those assets if you no longer have them. If you disposed of any of those assets for less than fair market value or gave them away, Medicaid will penalize you. The penalty period depends on the amount of assets you gave away. The look back period and penalty period are not the same.
Many people put their children’s names on their bank accounts so they can access the money if necessary. The problem is that when you make someone else, including your kids, a co-owner of your accounts, your money is at risk to their creditors. For example, if your son is on your account and he later divorces, your money could be lost in the divorce. Your assets are also at risk to lawsuits, bankruptcies, tax liens and other creditors. It is usually very risky and not advisable to put your kid’s names on your bank accounts.
Medicaid is a means tested government program. You can only have a limited amount of income and assets to qualify. The income limit is $2,205 dollars a month and the asset limit is $2,000. To qualify for Medicaid, you have to spend down until your non-exempt assets do not exceed $2,000. There are some assets that are exempt like a car and a prepaid funeral plan. These assets do not count toward your limit but most everything else does. In addition to qualifying financially, you must also need skilled nursing care.
Yes. We have clients who were already in the nursing home private paying for care when their families hired us. We can help you protect much more if you preplan. However, even if you are already in the nursing home, in most cases we can still help you protect some of your life savings instead of losing it all to long term care expenses. If you have a loved one in a nursing home and you are paying out of pocket, give us a call to see how much we can protect.
If you are married and your spouse goes into a nursing home, you will not lose your home if you apply for Medicaid. Your home is an exempt asset as long as your spouse is living there. However, if your spouse later dies or if you are single when you go into a nursing home, Medicaid will put a lien on the home so your kids/grandkids may not inherit it. There are ways to protect your home in case you have to go into a nursing home.
A trust can help you protect your assets if you have to go into a nursing home. A trust is a separate legal entity so when you transfer assets into a trust, you no longer own the assets. In order to provide asset protection, the trust must be irrevocable. If the trust is revocable, you can move the asset in and out whenever you choose. Because you can get the assets whenever you want, there is no protection from creditors including the nursing home. However, if the trust is irrevocable, the assets owned by the trust are protected from creditors including nursing home.
There are number of ways to approach this issue. However, one of the best ways is to create instructions in your Trust or Will for your trustee or personal representative to create an LLC in the state of the Cabin/Lakehouse (“getaway property”) and deed the property to the LLC. An operating agreement spelling out how it will be used and managed is attached as an addendum. The beneficiaries will receive their membership in the LLC upon acceptance of the operating agreement. The LLC can have an indefinite duration unlike the trust itself and is simpler than a corporation and presents less risk of liability, forced sale by a beneficiary and other issues as opposed to leaving it jointly to the beneficiaries.
This is seldom the best approach for a number of reasons. First, you give up control You know longer can decide to sell or borrow against the home without there consent and participation. Secondly, the tax consequences to the recipient child or children is potentially disadvantageous as opposed to inheriting the property. This is because of capital gains tax on the profit or appreciation in value. When you gift your home to the children in your lifetime, they receive your basis in the property (what you have invested in the purchase and improvement). If the property has gone up in value over the years and they sell it for more than you had invested in it, the difference is capital gain subject to tax. If they inherit the property, they receive what is call a step-up in basis which the value at the time of inheritance. This would be the higher appreciated value reducing the gain for tax purposes.
First a trust is an entity you create in which to own and manage your money and assets. There are different types and the revocable is a popular alternate to will planning since it does not require Probate to distribute your assets at death. It also has great flexibility in that you can contribute or remove assets at your discretion or shut it down entirely if you were to decide to do so. It also provides privacy and allows you to distribute without filing a court proceeding that is public record.
When applying for Medicaid there is a lookback period of your finances to check for uncompensated transfers or gifts of assets. If these occurred within 60 months of applying, Medicaid has a formula to determine, if you are otherwise qualified, how many months you must pay before Medicaid benefits will begin. This is commonly called the penalty period. The length of time is dependent on the amount transferred. There are strategies to provide for payment through this period while saving a substantial portion of your assets in an asset protection trust.