Recently, I met with Carole and her family to discuss her plan to leave her significant assets to her children equally. Carole, a widow who is 83 but as spry as a 70 year old, lives alone in her own home, and is a net saver. Her children are worried about financial penalties should she need skilled nursing care in the future. Before we jumped in to change her Will, I recommended that we take a look at her overall financial situation first to determine if we could ensure her legacy while protecting her assets.

Carole has the following:

Wells Fargo Retirement account – Beneficiaries are 4 Grandchildren $ 122,500
Key Bank Retirement account – Beneficiary is her deceased husband    7,500
Checking account at Credit Union – Jt with deceased husband 37,500
Savings account at Credit Union – jt with deceased husband 97,000
3 One-year CDs at Credit Union 45,000
Key Bank Investment Account – Carole, son TOD beneficiary 33,000
House – transferred to daughter in 2008, life estate for Carole 218,000
Total $ 560,500

Carole’s monthly income is $3,100 including Social Security of $1,900, pension of $800 and distributions of $400 a month from her retirement accounts.

Carole has gifted $144,000 to her children since 2013 when her husband passed away. I suggested that she stop gifting for now. The penalty for the bulk of the gifts will be over in June 2019.

I explained that the house, valued at $218,000 is protected already. The Wells Fargo and Key Bank retirement accounts ($130,000) are also protected because they are in payout status. I also suggested that she name her three children as beneficiaries of the retirement accounts. Carole is allowed to pre-pay her funeral and burial, as well her children and their spouse’s funerals and an appropriate amount to spend on all of them would $67,500. Finally, Carole is allowed $14,850 as a personal resource allowance if she applies for Medicaid. Thus, $430,350 of Carole’s assets are protected.

She can establish an irrevocable income-only trust with the $130,150 in excess resources and 60 months from now that will be fully protected, given the five-year look back provision. If Carole needs skilled nursing before June 2019, then we can reverse the trust and use the funds to offset the gifts made in 2013 and 2014. If Carole needs care after June 2019, but before October 2022, she can still save almost half of the $130,150.

The whole family was quite relieved when they realized that even in the worst case, Carole will have to spend about $65,075 on skilled nursing care – not quite 12% of her current assets. All the rest of her assets will be protected.