I recently consulted with a family who was irate when they learned that actions they had taken on the advice of an attorney were not going to protect their mother’s assets as they had been led to believe. On the attorney’s advice, Mrs. D, their mother, had transferred a remainder interest in her home to her 3 children and believed that the house was protected in the event that she needed long term care. Now, they were told by the nursing home, not their former attorney, that the house was not protected and that they would have to give the house back and there was nothing they could do about. Furthermore, they would have to private pay for skilled nursing at $13,000 a month until Mrs. D’s resources were reduced to the Medicaid level which they estimated would be six years from now. Understandably, they were very upset.

To their relief, I told them that there were some strategies to employ that could protect her assets and that I was confident that Mrs. D would be eligible for Medicaid long before January 2023. First, I looked at the transfer. At the time of the transfer the house was worth $120,000. The remainder interest was valued at $100,000 and the life estate was worth $20,000. Now it was worth $166,000.00. So I knew that we would not want to give it back

We looked over Mrs. D’s resources and this is what we found:

Life Estate in Home $25,000 (House worth $166,000)
Checking Account $100,000
Savings Bonds – Mrs. D or her children $125,000 (Cash surrender value)
Stock Account – Mrs. D and her children $250,000 (Established in 2009)
Life Insurance – death benefit $75,000 $ 22,500 (Cash surrender value)
IRS rollover from deceased spouse $400,000
Total Assets $922,500

This is the plan we developed for Mrs. D:

We determined that the life estate had no value for Medicaid purposes, the savings bonds were in the children’s possession and because they refused to surrender them, there was a legal impediment and were not counted for purposes of qualifying for Medicaid. I warned the children that if they cashed any bonds in while Mrs. D was alive, they would have to give all of the money to her and it could affect her eligibility for Medicaid. The stock account was divided between Mrs. D and her three children making Mrs. D’s share worth $62,500. Her life insurance is worth $22,500. The IRA is not considered as a resource.

We determined that Mrs. D had countable resources of $185,000. We advised Mrs. D to transfer the life insurance policy to her children. This transfer increased the gifts in the last 60 months to $122,500 consisting of the house and the insurance policy, which creates a 12-month penalty period. That left Mrs. D with $161,500 in resources. She is allowed to keep $14,850, she pre-paid her funeral for $10,000 and she pre-paid $5,000 toward her children’s funerals, which left her with $121,650. That was just enough extra funds to allow her to make a loan to one child, who agreed to pay it back over the 12 months of the penalty period.

Mrs. D will be eligible for full Medicaid coverage on January 1, 2019. Instead of spending $908,000 on her care, Mrs. D. will pay $121,500 and because of the difference between the death benefit and the cash surrender value, Mrs. D will be able to pass on $853,500 to her children.