Ways to Protect Assets From Being Wiped Out

Many consider long-term care the ultimate threat to their freedom and their finances, and they are probably right, said Harley Gordon, a Boston-based attorney who specializes in elder law.

A 1987 study conducted by the House Select Committee on Aging showed that 67% of single Americans risk impoverishment in just the first year in a nursing home. Nearly half would be impoverished in just 13 weeks, the study said.

Married couples fare a bit better. Only about half would be impoverished by nursing home expenses in the first year and about a quarter of these couples would be impoverished in 13 weeks, the study said.

But those who plan quickly and thoughtfully may be able to avoid financial ruin and loss of control, Gordon said. How? You can work within the system to shelter assets and qualify for Medicaid, a federal health-care program for the poor.

Realize, however, that these strategies are controversial. Some say this type of financial juggling is cheating, and they complain that encouraging such conduct will bankrupt the system. Additionally, others say you should pay your way no matter the cost. These arguments make Medicaid planning a murky moral dilemma that all individuals must consider for themselves.

But the financial dilemma is clear. If you are single, need long-term care and have not planned or purchased long-term care insurance, you will need to spend all but about $2,000 of your cash and liquid investments before the government will assist you.

Depending on where you live, your family situation and your medical prognosis, you may or may not be allowed to keep your home.

If you are married, your spouse may be impoverished by your nursing home bills. And few are exempt from worry. One nursing home administrator said a man with more than $1 million in assets was impoverished after several years in a nursing home and is now surviving on Medicaid.

If you have time and the temperment, however, you can avoid this financial disaster by sheltering your assets in a way that allows you to get public assistance through Medicaid (MediCal in California). But to do that, you must have a basic understanding of the system.

In a nutshell, it is a system to help the poor. So, unless you are poor or you are unable to access to your wealth, you may not qualify.

To determine your eligibility, Medicaid takes a look at your income--Social Security, pension, interest and dividend earnings--and your assets, such as stocks and bonds, real estate, partnership interests, savings, etc. Medicaid officials essentially take a financial snapshot when you enter the nursing home and fill out a Medicaid application. If you are married, they’ll look at the assets and earnings of you and your spouse no matter whose name those assets are held in.

If your “countable” assets are worth more than certain threshold amounts, you must spend them before Medicaid will pay for your long-term care.

How much can you keep? It depends, to some extent, on where you live. But, generally, you are allowed to keep about $2,000 in cash, your home, your car and some personal effects. (Those are called non-countable, or exempt, assets.)

If you qualify for Medicaid, you’ll also be allowed a small “personal needs” stipend that ranges from about $30 to about $70 per month. And, for a limited time, you may be allowed to keep a housing allowance to make repairs and mortgage payments on your home. The rest of your money must go to pay nursing home expenses.

If you have time to plan, you can put your assets in a Medicaid trust, transfer them or give them away. However, if you take any of these actions within 30 months of entering a nursing home, Medicaid won’t pay your bills right away.

If, for example, you gave all your stocks and bonds to your children in January, 1990, and then checked into a nursing home in January, 1992, Medicaid would wait six months--the end of the 30-month period--before helping with your long-term care expenses.

However, those with substantial assets may decide to risk temporary disqualification and transfer the bulk of their assets anyway. Why? Consider a couple with a $600,000 estate. The husband needs nursing home care.

If they were to do nothing, they would need to “spend down” their assets to about $66,000--in many states that’s the maximum the wife would be allowed to keep.

While her husband is alive, the wife will usually be able to receive a basic living allowance from his monthly income. But if the husband dies before the wife, those monthly stipends will cease and the wife will be forced to live on only her monthly income and income derived from that $66,000.

What happens if they transfer the bulk of their assets the day the husband goes into the nursing home?

Let’s say nursing home expenses are $40,000 a year in their area. They must pay these costs for 2 1/2 years--about $100,000. After that, if their assets are sheltered in exempt categories or a Medicaid trust, Medicaid will pay. The wife keeps $500,000 instead of $66,000.

What You Can Keep

Nursing home residents are allowed to retain a portion of their monthly income for personal needs. Here are the limits in a handful of states, rounded to the nearest dollar.

Alaska: $75

Arizona: $61

New York: $40

California: $35

Illinois: $30

Source: “How to Protect Your Life Savings from Catastrophic Illness and Nursing Homes” by Harley Gordon and Jane Daniel.