There Are Ways to Prevent Loss of Your Life Savings

For many, the need for long-term care comes on suddenly. They’re alone and have a stroke or break a hip and find they cannot care for themselves after leaving the hospital.

While any serious illness is upsetting, one that requires a nursing home stay can be financially crippling. A year’s stay in a nursing home usually costs between $30,000 and $60,000. For many, such an expenditure would decimate their life savings.

But early planning--or some quick moves at the onset of the illness--can save some individuals a fortune. Here’s what the experts say you can do to shelter your assets and qualify for Medicaid assistance with your nursing home bills.

* Set up a Medicaid trust: Medicaid trusts have two main characteristics. They are irrevocable and they limit the ability of the trustee to give assets to the beneficiaries. Often they’ll allow the trustees to simply hold onto the assets and provide the beneficiaries only with the income earned on their investments. If they are properly set up, these trusts will always protect your principal, but you may have to use the trust earnings to pay medical expenses.

There are also a few drawbacks. Most notably, you lose control over trust assets and you will have to hire an attorney to draw up the trust documents. That will probably cost upwards of $500. Additionally, if you have a Medicaid trust that was established before 1986, you should have it reviewed, said Harley Gordon, a Boston-based attorney who wrote a book called “How to Protect Your Life Savings From Catastrophic Illness and Nursing Homes.” Applicable laws changed that year and these old trusts, even though legal when formed, may not protect your assets under today’s rules.

* Transfer money to your children: The main caveat for this strategy is obvious. Before you transfer the money, you need to be sure your kids will give it back if you need it. Often, children spend the money or refuse to provide it to their parents after it has been transferred, Gordon says. And you can’t have a written contract that binds them into giving the money back, because that would mean that Medicaid could count those assets as yours.

* Give a trusted relative or friend durable power of attorney: A durable power of attorney allows someone else to handle your financial affairs if you become incapacitated. Why is this important? Consider a hypothetical widower who has $150,000 in assets, suffers a stroke and must be admitted to a nursing home. Since he is incapacitated, he cannot transfer his assets. But if he has established a durable power of attorney, his representative can. Since the assets might be transferred within 30 months of entering a nursing home, this man would not be able to receive Medicaid assistance for almost three years. Let’s say his nursing home expenses are $80,000 during that 30-month span. If the other assets were transferred, this man would have protected $70,000 worth of his estate.

* Pay off your home mortgage and other legitimate debt: Although you can’t transfer assets within 30 months of entering a nursing home without jeopardizing your Medicaid eligibility, you can pay off your debts. For a couple where only one spouse needs nursing home care, repaying a home mortgage will reduce future monthly expenses for the stay-at-home spouse. And since the home remains protected from Medicaid for as long as the stay-at-home spouse is alive, this can effectively shelter what is often a couple’s biggest asset. Additionally, if you need to buy any large household items in the near future, you should consider buying them now. Why? As long as there is a stay-at-home spouse, household goods--regardless of their value--are protected.

* Consider transferring exempt assets to children, relatives and friends. Although there are some variations and limitations, exempt assets usually include a house, a car, household goods, a wedding ring and an engagement ring, up to $1,500 in cash surrender value on a life insurance policy, burial plots, and some investments if they are essential for the support of the family. Why bother to transfer exempt assets? Because some assets do not remain exempt forever, according to Armond D. Budish, a Philadelphia attorney who wrote “Avoiding the Medicaid Trap.”

For example, your mother is in a nursing home and your father is at home. She has antiques and jewelry worth $30,000. While your dad is alive, that’s protected. But if he dies, the bulk of those items must be sold to pay your mother’s nursing home costs. If your mother transferred these assets to you while they were still exempt, i.e. when your father is alive, they would have remained protected. Then, if she recovered enough to go home, you could return them.

There are a variety of additional strategies that individuals and couples can use to shelter their assets from Medicaid. However, almost all have drawbacks. And what’s best will depend on individual circumstances. If you are approaching an age where you may need to use these tips, consult an attorney schooled in “elder” law. Additionally, you might consider reading books on the subject. There are several good books available in addition to those by Budish and Gordon.

What a Healthy Spouse Can Keep If you are married and don’t shelter your funds, Medicaid will only allow the stay-at-home spouse to keep a limited amount of “countable” assets-generally cash, stocks, bonds, investments properties and partnership interests. How much the healthy spouse can keep varies state by state. Here are the limits in a handful of states. Arkansas: $60,000 Calif.: $66,480 Hawaii: $62,480 Illinois: $66,480 Iowa: $24,000 Missouri: $13,296 N.M.: $31,290 N.Y.: $66,480 Penn.: $13,296 Texas: $13,296 Source: “How to Protect Your Life Savings From Catastrophic Illness and Nursing Homes,” by Harley Gordon and Jane Daniel.