Elder Law Articles, Uncategorized

When the Elderly go to a Nursing Home: How do you Minimize a Spend Down of Assets?

I have clients, most of them elderly, who may require a long term stay in a nursing home facility due to senility, Alzheimer’s Disease, dementia, etc. Quite often this results in a spend down of all of the assets that the elderly have accumulated throughout their lifetime before a client can qualify for subsidy through Medicaid (not Medicare). There are strategies that can be used to minimize a mandatory spend down of all of the assets that the elderly may have. This article assumes no long term care insurance is available to the client and the client is bound for a nursing home or retirement home. Some very broad strategy concepts that can be applied for a single person are as follows:
  1. Making gifts and/or transfers to a child who is disabled, blind, or a minor.
  2. Making gifts or transfers of the principal residence to a child who has lived with the parent for two or more years and has provided care and support to the parent. Watch the income tax impact.
  3. Gifts and/or transfers to children or other loved ones.
  4. Prepaying funeral expenses.
  5. Paying off debts.
  6. Cashing in cash surrender value on life insurance policies.
  7. Cashing in IRAs (although this should be a last case scenario so that earnings on deferred income taxes can continue to compound).
  8. Cashing in annuities or converting assets to Medicaid type qualified annuities.
When the nursing home resident has a spouse living in the community, in addition to the above broad strategies, the following can be considered:
  1. Transfers to the community spouse of the nursing home resident’s spouse’s interest in the residence.
  2. Transfer the vehicle to the community spouse.
  3. Converting excess resources into allowable income (but this may require a court order).
All of this planning is complicated by a 36 month look back to the period prior to the Medicaid application date, resulting in a possible penalty period. At the present time a single person can maintain $2,000 of assets and $30/month in income if they are going to qualify for Medicaid. In 2002 a married couple with one spouse qualifying for Medicaid can maintain $89,280 of assets and approximately $2,200 of income. There are some additional income and asset allowances, but by and large they are minimal. A long term nursing home stay can result in dissipation of a lifetime’s accumulation of assets. For those who fail to plan for a possible nursing home stay in the future, they do at their own peril and the peril of those to whom they wish to leave their assets. By: Anthony B. Ferraro Attorney – CPA **This document is for discussion purposes only and is not intended to be construed as legal advice. You should never attempt estate planning without the advice of competent legal counsel. Please feel free to contact our offices if we may assist you.** Copyright 2002 THE LAW OFFICES OF ANTHONY B. FERRARO, Rosemont, Il.