The State Doesn’t Want Mama’s House

Consider this: I am frequently engaged in conversation with folks that are helping their aging parents plan for and deal with the increased cost of healthcare.  Granted, these costs can be exorbitant, especially those involving “long-term” care (i.e. nursing home), but the manner in which many people go about their “planning” is sketchy at best.

A large number have not thought seriously about the financial implications of these costs beforehand and are determined to rely on the Medicaid system.  This system is a joint Federal and State health insurance plan for the impoverished.  The Affordable Care Act of 2010 set the eligibility requirement at 133% of the Federal Poverty level (www.medicaid.gov).  In order to qualify for Medicaid a person receiving the care cannot have more than a minimum amount of assets (www.payingforseniorcare.com). The plan goes like this:  In case I require nursing home care in the future, I should go ahead and transfer assets out of my name and into (generally) my children’s.  “We don’t want the State to take mother’s home” is the reasoning behind such maneuvers.In 49 of the 50 states there is a “look back” provision of 5 years that disqualifies any asset transfers that were completed at below fair market value.  Keep in mind that transferring the house to a spouse does NOT count as one of these “invalid transfers” (www.elderlawanswers.com).    

While this is not always well-received, here’s the thing(s).

• The State (read taxpayers in this case) does not want the property or any of the other assets it just wants those who are financially capable to pay their way even though it may indeed be a struggle.  If we are talking about a situation with a surviving spouse (widow or widower) and if adult children are in the equation then the kids can buy the house if they want.  I find that usually the children are not interested in buying the house so maybe a sale outside the family is the best alternative.
• If one does transfer property (home, etc.) to the children, consider these things:  1) If the child(ren) is/are the subject of legal action then those assets (mama’s home) could be at risk.  2) You lose homestead exemption so your property taxes are considerably more

All of this potentially illegal activity to what end?  Keep in mind that if we’re talking about people with property then there ARE resources that can be used for the patient’s care.

Now, I’m going to let you in on something.  The topic at hand for this post really has not-that-much to do with Medicaid or the cost of long-term care although those are legitimate subject matters.  This post, however, is about the absolute folly in which we can entangle ourselves while going through extremely important but complex thinking exercises. 

Don’t procrastinate on important planning matters, don’t think the easiest route is the right one, and beware of friends and family bearing advice.

mike