Elder Law Answers

If I go to the nursing home they will take all my assets.

Not necessarily true.

When an individual enters the nursing home, he is expected to pay a pre-determined amount for his care. There are three basic options from which to obtain funds for payment: (1) from your individual assets (using cash and selling other assets); (2) long-term care insurance; and (3) medical assistance (welfare system wherein the government pays for your care). Things that might affect whether all your assets will be spent on the nursing home are the total value of your “estate,” how long you stay in the nursing home, and whether you can transfer or use assets so that you will qualify for medical assistance.

I must give my assets to my children at least 5 years before I go to the nursing home so that they will be protected.

Not necessarily true.

This concept of protecting assets from the nursing home is based upon an individual’s ability to use one of the two other choices for payment of nursing home costs: (1) long-term care insurance; or, (2) medical assistance. Under current medical assistance rules, if an individual enters a nursing home and applies for medical assistance coverage, the government will review all transfers/gifts made by that individual in the last 5 years. If transfers are made for inadequate consideration (i.e. a gift), then a penalty period is imposed during which the government will not supply medical assistance to the individual regardless of the fact that the individual has reduced his/her assets to below $2,000. Two points to remember: (1) if you give away assets too soon, you will give up all control and access over those assets and if they are titled in your children’s names, the assets can be taken by their creditors during your lifetime; (2) if you do nothing until entering the nursing home, you typically can protect approximately one-half of the assets you have at the time you enter the nursing home.

I should transfer my house/cottage to my children so that the nursing home won’t take it.

Not necessarily true.

While it may be effective to transfer your home or cottage to your children during your lifetime, you should carefully consider the manner in which you do so. Transferring 100% of the ownership to your children (wherein you retain no rights) can create additional problems: (1) if a child suffers an unforeseen event which leads to creditor issues and claims, your home/cottage can be foreclosed upon by their creditors; (2) a transfer of 100% of the ownership to children creates a “carry-over basis” which means that if your children sell your property at any time, they will pay capital gains taxes on the difference between what you originally paid for it and its current value at the time of the sale. I typically recommend a transfer of a remainder interest to the children (through the use of an irrevocable grantor trust) and a retained life estate by the client (making it unavailable for medical assistance). This allows the client to continue to use the property with no risk of forfeiture during their lifetime for the sins of their children and will create a situation that the children will receive a “step-up” in basis when they fully inherit the home/cottage upon the death of the parent. A trust is used, mainly for personal residences, to allow the sale of the home during the lifetime of the parent while using the parent’s personal residence exclusion to avoid any capital gains taxes.

I want to avoid creditors so I plan to move my accounts into my children’s names.

Could be a dangerous move.

While this may allow you to be successful in avoiding creditors, transferring your accounts to your children is dangerous because it now subjects those accounts to claims by their creditors. Additionally you have lost total control of your accounts.

I must disinherit my disabled child because they can’t have more than $2,000 in assets.

Not true.

With proper estate planning parents can provide for the supplemental needs of their disabled children. Benefits to proper planning over disinheritance is that parents are able to earmark monies to continue to provide for their child after the parents pass away.

My disabled child can’t have more than $2,000 in assets, so I will leave his inheritance to one of his siblings.
This is dangerous because it does not create a legal and enforceable obligation upon the sibling to provide for your disabled child. While many siblings take this obligation seriously, there are still unknown and serious events, which can cause these assets to be lost to another party, such as creditors, ex-spouses.

My children are so responsible so they would never have issues with a creditor so I don’t have to consider their potential creditor issues in my planning.

Not necessarily true.

Creditors are not only individuals who your children owe debt obligations, but could include spouses in a divorce situation, medical bills occurred in an accident in which your child was not at fault, failure of a business due to a partner’s decision or judgments against your child resulting from an accident with unintentional consequences.