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January 10, 2008
PLANNING FOR SINGLE SENIORS PART 2
Last week I talked about a way for seniors, who have limited funds, to put aside this money when they face nursing home placement so that they are able to afford some necessities of life while in the nursing home. This week I’m going to focus on single seniors whose sole asset is their home, or have other significant other assets, and have not done any advance planning.
This is a very common scenario; a senior who owns his or her own home and is facing nursing home placement. What are their options?
The first thing that you need to examine is whether your home is automatically protected from nursing home costs. Under the MassHealth regulations, your home will not be counted as an asset if any of the following people live with you.
· Your spouse,
· A child under age 21 or permanently and totally disabled.
· A sibling who has an ownership interest in the home and has been living there for at least one year prior to going to a nursing home.
· A caregiver child. A caregiver child is a child that has lived with the elder for at least 2 years and has provided care that has kept their parent out of a nursing home.
· A dependent relative. A dependent relative is a relative who has any kind of medical, financial or other dependency.
Let’s assume that you live alone, are going into the nursing home, and none of the exceptions mentioned above exist. What are your options?
SELL YOUR HOUSE AND PRIVATELY PAY – Under this option, you would sell your house and privately pay for your nursing home care until you have less than $2,000 left and then apply for MassHealth to pay for your nursing home care.
SELL YOUR HOUSE AND TRANSFER THE FUNDS TO A SPECIAL NEEDS TRUST – Under this option, you would sell your house and transfer the funds to a pooled trust. By transferring the money to the pooled trust, you would become immediately eligible for MassHealth. This provides three benefits:
· Money in the trust is available for your personal needs while living in the nursing home for the rest of your life.
· The amount of money you will owe upon your death, from your trust, will be less than the amount that you would have privately paid for. It is a well known fact that MassHealth pays less for nursing home care than those who privately pay.
· Anything left in your trust, after repaying MassHealth for the amount they paid for your nursing home care, will be paid to your heirs.
EXAMPLE: “Helen’s” only asset is her home. It is worth $400,000. “Helen” is placed in a nursing home. The nursing home cost $10,000 per month and “Helen’s” income is $1,000 per month. This means that she has a negative $9,000 per month cash flow. At $9,000 a month, the $400,000 would be gone in about 44 months. Instead of privately paying, let’s assume that “Helen” puts the $400,000 in a pooled trust. Let’s further assume that the MassHealth rate for “Helen’s” nursing home stay is $6,000 per month. Since “Helen” will paying her monthly income of $1,000 to the nursing home, her net monthly cost is $5,000. If “Helen” were to live 44 months in the nursing home, the lien amount, or the amount that MassHealth had paid for her care would be $220,000 (44 months x $5,000=$220,000). “Helen’s” heirs would then receive the balance of $180,000. This example ignores the income earned by the original $400,000 over the 44 month period as well as the termination fee charged by the pooled trust that could be as much as 20% of the ending balance.
If “Helen” had only lived a few months in the nursing home, she would have been better off financially had she sold her home, and privately paid, because she would have avoided the termination fee by the trust. If she had lived for 7 or more years in the nursing home, her heirs may not receive anything from the trust, but at least she would have had access to her money to improve her quality of life while at the nursing home.
The final twist on the scenario of placing your assets in a pooled trust is when you have assets of $500,000 or more. There exists the possibility that the trust could earn more than what the MassHealth lien would amount to, regardless of how long you stayed in the nursing home. This would result in much more money going to your heirs, after your death.
The new MassHealth regulations don’t allow you to give away your assets due to the 5 year look back period. Advance planning is necessary to protect all of your assets and for those who do not take advantage of advance planning, knowing your options when nursing home care is imminent is important.
This article gives general information and not specific advice on individual matters. Persons wanting individualized advice on matters discussed should contact an advisor experienced in those matters. To the extent this article provides information on legal matters, it is based on law in effect in Massachusetts on the date of posting (laws in effect in other states are often quite different).
Ronald H. Surabian is a CPA and attorney who works at the Elder Law Center in Saugus, Massachusetts. He also holds Masters in accounting and a Masters in tax law. He currently serves on the board of directors of the Massachusetts Chapter of the National Academy of Elder Law Attorneys. If you have any questions please call me at the Elder Law Center, One Essex Street, Saugus, MA 01906 (781)233-4444. To view this or any prior article, please visit our web site at www.elderlawcenter.org