Anyone who has had a loved one in a nursing home knows of how incredibly expensive nursing home care can be and how quickly assets can be depleted to cover such expense. Eventually, most seniors remaining in a nursing home on a long term basis will need to apply for Medicaid in order to cover such costs. This can only be done, however, after they become “poor” and qualify for Medicaid.
In order to qualify, a single person in need of nursing home care must spend their liquid assets, including all money in bank accounts, all retirement plan assets, the cash value of any life insurance policies, and any stocks, bonds, or other investment assets, down to $2000.00. He or she will also likely have to sell the house unless that person is able to return to it within a relatively short period of time or transfer it using one of the exemptions in the Medicaid regulations.
A spouse with a husband or wife remaining outside of the nursing home is slightly better off, but still must spend what likely amounts to a majority of their assets before becoming eligible for Medicaid. Their asset limit together is $128,420. Thus, nursing home care, without proper planning, can mean the depletion of assets earned over many years through hard work and diligent saving. Needless to say, people are often curious about how one can attempt to protect their assets from this frightening fate. One way is to execute and fund what is called an “Irrevocable Income Only Trust” or IIOT.
As noted above, when it comes to applying for Medicaid, an applicant can have only minimal assets. Additionally, when applying, MassHealth, the body governing Medicaid here in Massachusetts, will request five years’ worth of financial records in order to ascertain whether assets have been transferred within that period. If so, a disqualification period will ensue unless the transfer is cured.
One option to protect assets is to transfer them into an IIOT. Most of the time, people are interested in protecting their principal residence. The way it works is that the trust is drafted, executed by the trustors, and the property is deeded into the trust. Once the five year period goes by, the house, and other property in the trust, will be protected from exposure to MassHealth. Of course, there are some drawbacks to taking this action.
In order for the IIOT to function as intended to protect assets, the original owners of the assets in the IIOT have no control over those assets. Unlike the more common revocable living trust, the person setting up the IIOT may not be the trustee. This is because if the original owner is the trustee, and therefore in control of trust assets, those assets will be considered “available” for payment to the nursing home. This is a major issue for some folks, who do not want to lose control of their house or give their trustee the final say on whether it is sold. Additionally, because assets in an irrevocable trust are not available to the trustors, most people do nut put financial assets into the trust.
While the issues detailed above can be a deterrent to some people, we also have clients who have a child or children who they trust enough to put them in control of their residence. And, as stated above, if you transfer the residence into the trust and the five year period passes, the asset will be protected from recovery by MassHealth. For many, the idea of protecting their home, which may be their most valuable asset, both financially and emotionally, is enough incentive to take action and establish an IIOT.
Of course, as with any topics we discuss in this forum, there are complications beyond the scope of this article. It is important to work with an attorney who is well informed in the law surrounding these issues. We would be happy to meet with you if this is something that you would like to discuss in further detail.
Please feel free to contact Lantz Law if you’d like more information or would like to schedule a consultation.