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Even in Poor Economic Times, the Risk of Long-term Care Remains: Plan Now to Protect Remaining Assets from the Costs of Long-term Care

For over forty years William had been the primary bread winner for his family. His wife Mary cared for the kids at home and when they left to start their own families she spent time volunteering at the local humane society. As William approached retirement, William and Mary began to count down the days. They had big plans after William’s retirement and the day he retired they began to put those plans in place. First, they visited their grandchildren in Texas. Then they wintered in Florida. The next summer they celebrated their forty-fifth wedding anniversary in Europe. While at home, they took those ballroom dance classes they always talked about and William finally learned to play the guitar. And so was the life of William and Mary for the next five years.

William and Mary decided early on that saving was essential to meeting their needs in their “golden years.” They had watched their own parents struggle to live off their meager Social Security checks and William and Mary wanted to make sure they did not live the same struggles. So, throughout the years, they put away as much as they could into individual retirement accounts and Williams 401(k). This astute decision allowed them to live the retirement they dreamed.

When William died at the age of seventy, Mary felt confident that their savings would still last the rest of her life; that is, until she met Margaret in the grocery store one afternoon. Margaret was the spouse of William’s boss. Like William and Mary, Margaret and her husband saved significantly for retirement, even more so than William and Mary. Margaret’s husband, though, had suffered from dementia for over five years and had been in a nursing home for three of those years. Margaret told Mary that due to John’s monthly medical costs of $6,000.00 per month, their savings was nearly wiped out and she was selling their family home. Margaret told her, “we covered the risk of losing our home from disaster and our car from an accident, but we never thought to cover ourselves in the even riskier event of one of us needing long-term medical care.” That evening, Mary though about what Margaret had said, but she still could not imagine her care needs exceeding her savings, even if she needed care for as long as John had.

Then the unthinkable happened. The economy began to slow, businesses began to fold, and the markets dipped sharply. In a little over three months, Mary had lost nearly half of what it took her and her husband to build over forty years. Mary decided to take action to preserve what precious little savings she had left and protect her future long-term care needs. Mary wanted to be able to have quality care without running out of money. Further, she wanted to preserve money to enhance her quality of life in her later years. She had heard about an elder law attorney who could review her situation and prepare a life care plan to meet her goals. She called and made an appointment
with him.

She and the elder law attorney discussed her long-term care goals at length. Mary first and for most wanted to protect her assets to give her access to a range of quality services. She stated her preference to remain at home as long as possible. She also discussed her secondary concern of leaving a legacy for her children, especially her son, Robert, who had been unable to find gainful work for some time.

The elder law attorney reviewed her current situation in detail. They discussed the extent of her assets, her monthly income and expenses, and her health insurance. The elder law attorney encouraged Mary to explore the option of long-term care insurance, despite Mary’s reluctance that it is probably too expensive. Mary and the elder law attorney also discussed how Medicaid may help pay for costly nursing home or equivalent home and community based services.

With Mary’s goals and the necessary facts, the elder law attorney prepared a multi-facetted asset protection plan with several options. Mary elected the following options:

• Mary executed a Care Agreement with her two children. The Agreement allowed Mary to pay her children who provide services to her and help with her daily needs. If Mary required assistance at home, then she could begin payments to her children. This would delay her need for nursing home level of care.
  
  
• Mary also executed an Irrevocable Trust, a legal document that appoints a Trustee to hold assets during Mary’s lifetime and distribute them to her intended beneficiaries at her death. The Trust provided that Mary would receive income that the assets in the Trust generated for her life. The Trust also permitted the Trustee and child beneficiaries to access funds under certain circumstances. Thus, even though Mary has no legal rights to the trust assets, her family could withdraw the funds and pay for her needs as they chose. Assets transferred to the Trust were
  not subject later to Medicaid estate recovery.
  
  
• Mary then transferred a sum, representing roughly half of her assets, into the Irrevocable Trust. Although, the transfer of assets subjected Mary to a Medicaid penalty period, she felt she
  could take the risk as she was still in good health and most likely not need care during the penalty period.
  
  
• Mary and the elder law attorney also discussed exempt asset planning for her remaining
  assets if she required Medicaid assistance in the future. The exempt planning consisting of converting her remaining countable assets into asset that were exempt in determining
  Medicaid resource eligibility.
  
  
• Finally Mary executed a new Power of Attorney that permitted her agents to conduct future Medicaid planning, including exempt planning, if she could not do so herself.

Six years later, Mary was diagnosed with Alzheimer’s related dementia. As her memory began to fail, the pieces of the plan she put into place years before worked well. Her son, Robert, spent some time caring for her at home. The Care Agreement allowed Mary to pay Robert for his support. The Power of Attorney permitted her agent and daughter, Louise, to work with the elder law attorney and conduct exempt asset planning with her remaining assets. In completing an exempt asset plan, Mary qualified for Medicaid home and community based services. The home and community based services through Medicaid and Robert’s support allowed Mary to remain in her home for almost two years. Later, after entering a nursing facility, Mary’s children and the Trustee of the Irrevocable Trust agreed to use a portion of those funds Mary had set aside for them in the Irrevocable Trust to purchase a special mobility chair that allowed Mary to more freely move about the facility.

Upon Mary’s death, Robert was able to open his own movie rental business with the funds he received from the Irrevocable Trust. Mary’s family agreed that the asset protection plan that Mary put together with the elder law attorney years before was of great value, even at a time when Mary’s assets were slowly being absorbed in a down economy. They all felt fortunate to not have to impoverish their mother like Margaret had to do when her husband fell ill.

Jeffery D. Stinson
Severns & Stinson
December 22, 2008

The information provided herein is intended only to convey general information related to legal issues commonly encountered and is not intended to be legal advice. This information is not intended to create any legal relationship between Severns & Stinson and the user.

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Information and articles from our website are presented as a public service by Severns & Stinson. We help our clients protect their assets and their rights to health care and long-term care. This article is general in nature and is not to be taken as legal advice to any particular person. Consult an attorney for specific legal advice for your circumstance.