Nursing Homes, Medicaid, and the Legacy Protection Trust
If you are worried about what will happen to your assets if you had to go into a nursing home, this article is for you.
Will you be one of the 70% of Americans over 65 who will need long term care? The idea of needing nursing home care is a scary one. And when you think about the financial ramifications, it can be devastating for a family.
In Florida, the average monthly cost for a nursing home room is just over $6,000.00 per month. At that rate, how long will your assets hold out?
There are 3 ways to pay for nursing home care:
1. Private Pay. You would pay for it yourself using current income sources such as social security payments, pensions and income from your IRA and personal investments. If your income isn’t enough to cover your nursing home expenses, you will have to tap into the principal of your investments and watch as your children’s inheritance is eaten away.
2. Long Term Care Insurance. Medicare and most health insurance programs fail to cover most of the expenses of long term care. You would be required to purchase insurance designed specifically for long term care. These policies can be very expensive, especially if you are purchasing them at age 60 or older. And many times, pre-existing conditions make coverage for many persons unavailable. In fact, only about 10% of the population has long term care insurance. The rest rely on their own assets and, when they run out, on . . .
3. Medicaid. Medicaid is a federal and state partnership that pays completely for the nursing home care of those who qualify. That’s the catch. In order for a single person to qualify, she would have to be destitute. Other than her home and her car, she could only have a total of $2,000 of assets in her name. If she has a spouse at home, the spouse can only have the home, a car and $115,920 in other assets to live on.
If she or her husband have more than those amounts, they would have to “spend down” their assets until she qualifies. At $6,000 per month for the nursing home and whatever the stay at home spouse would need to live, it wouldn’t take long. This generally leaves very little for a person to pass on to her heirs, particularly since the state can claim almost all of her assets (except protected homestead) after her death as reimbursement of costs paid by Medicaid.
I HAVE A REVOCABLE TRUST. WON’T IT PROTECT MY ASSETS FROM NURSING HOME CARE AND OTHER CREDITORS?
Unfortunately, the answer is no. A revocable trust is not designed for asset protection. Your revocable trust protects you and your family from the costs and problems of probate, but not from your creditors. Because a revocable trust is designed to allow you complete access to your assets during your lifetime, your creditors also have access. In order for you to have protection from your creditors, you would have to permanently give up your ability to access your assets by placing them in an irrevocable trust.
The problem with most irrevocable asset protection trusts is that they are inflexible and put you in almost as bad a situation if you end up not needing nursing home care as your would be if you did.
THERE IS A SOLUTION TO THIS PROBLEM.
The Legacy Protection Trust is a special type of irrevocable trust that has many of the benefits of the revocable trust while still providing protection. Assets that you put in this trust avoid probate and are also shielded from lawsuits, medical expenses and the catastrophic expenses resulting from nursing home care. Also any assets transferred to the trust at least five years prior to applying for Medicaid benefits will not count toward the amounts I showed you above when qualifying for Medicaid.
By setting up a Legacy Protection Trust you can protect the assets you transfer into it and still receive all of the income generated from those assets. In many cases, you can be the Trustee of your Legacy Protection Trust and control how your assets are managed and invested. And even though the Legacy Protection Trust is “irrevocable,” it can still be revoked if the Trustee and all of your beneficiaries agree to revoke it.
I’M HEALTHY AND I DON’T NEED NURSING HOME CARE NOW. WHY SHOULD I WORRY ABOUT THIS?
Because studies have shown that 70% of all Americans who reach the age of 65 will need long term care. This is an issue you can’t ignore. Without proper planning, a majority of couples become impoverished within one year of one of them entering a nursing home.
Also, in order to qualify for Medicaid, any transfers to a Legacy Protection Trust must be made at least 5 years before applying. The time to plan is now.
CAN I JUST TRANSFER MY ASSETS DIRECTLY TO MY CHILDREN?
Yes, but there could be adverse consequences. Remember that the transfer must be made at least 5 years before applying for Medicaid benefits. During the 5 years, most people want to have the benefit of the income from the assets. Since those assets are now owned by your children, you have no legal right to the income. Your children would have to give it to you in the form of gifts. If they become incapacitated, die or suffer liability from a lawsuit or divorce, those assets could be lost to you forever.
The Legacy Protection Trust protects your assets from liability– both yours and your children’s – allows you to receive the income, avoids probate and enables you to qualify for long term care benefits such as Medicaid.
The time to address this issue is now. Call our office at (941) 473-2828 and set up your appointment for a free consultation to find out whether the Legacy Protection Trust is right for you.