How can I protect my house from Nursing Home costs?

Posted in on March 14, 2014

If I have to go into a nursing home, will I lose my house? This is a question we hear often in our elder law practice. The statistics show today that there is a 66% probability that the average American will spend some time in a nursing home during his or her lifetime. In the event a stay at a nursing home is required we must consider, among other things, how it is going to be paid for and the ultimate negative impact on inheritance.

After Medicare benefits, if any, are exhausted in 100 days or less there are three basic sources of funds to pay for a nursing home: private pay (i.e. the individual’s savings), long term care insurance, and MassHealth, which is only available in the event the other two options are unavailable.

Nowadays, due to the increase in life expectancy, families must view their estate plan in a different light. The current average stay in a nursing home is three years. At present, the average cost of a nursing home in our area is $12,000.00 per month and rising. At $12,000.00 per month, a year in a nursing home would be $144,000.00 and the average stay of three years would cost $432,000.00. Without any asset protection strategies, this sort of yearly expense is bound to deplete any inheritance you have planned for your heirs.

The best method to protect your home is to convey your house to an Irrevocable Trust at least five years before applying for benefits. By utilizing an Irrevocable Trust, the assets inside that Trust, including the house, are not considered part of the applicant’s countable assets. In the event benefits are approved, MassHealth can only seek reimbursement through estate recovery which essentially is the probate estate.

Some of the highlights of the Irrevocable Trust are as follows:

It is by definition “Irrevocable” so that the Applicant is prohibited from revoking the Trust and reacquiring ownership. Also the Applicant cannot be a beneficiary of the Trust;
There is a five-year look back period is imposed on such transfer;
After the five years has elapsed from the date the house is conveyed to the Trust, it will be non-countable; as long as all other criteria is met; andThe transfer of the house to the Trust is intended to not disrupt your life. You will still live in the home and be liable for utilities, taxes and upkeep. However, after the transfer, it is very difficult, if not impossible, to refinance or acquire a reverse mortgage.We must recognize that transferring the house for the purpose of qualifying for long term care benefits and other associated asset protection purposes will impact your estate plan in other ways including probate and taxes. The house will now be owned by the Trust so that it can avoid probate. When the house does not go through the probate process, MassHealth is prohibited from applying a lien to seek reimbursement. As with any planning technique in elder law, we must consider the gift, income and estate tax consequences of such planning. A sophisticated and carefully crafted Trust will allow you to avoid a gift tax, retain your capital gains exclusion in the event the house is sold during your residence and allow your heirs to receive a more favorable capital gains tax treatment when they sell the house after the your death. Should you decide to downsize after the house is conveyed to a Trust, the Trust can sell the house and buy another smaller property or pay the deposit on an assisted living facility.
The Trust that allows the house to be moved out of the your countable assets for nursing home and probate purposes but retained for optimal tax consequences is often the ultimate recommendation. As with all aspects of elder law, there are other options that are available. While we certainly review each option, including the transfer of the remainder interest in the property to children or simply an outright gift of the property to a child, neither of these options provide the dual benefits of MassHealth protection and tax preferred status that the Irrevocable Trust offers. We must remember that this plan is most effective when we have the luxury of time to wait out the five years.

This e-Bulletin is only designed to provide a quick look at planning for nursing home costs. No planning technique can be done without a thorough examination of each person’s particular needs and concerns. If you would like to learn more about how you or a loved one can protect assets from nursing home costs, please contact Baker, Braverman & Barbadoro, P.C. to set up an appointment with one of our estate planning attorneys to discuss how we can assist you in protecting your assets.