Protecting Your Assests Before Long-Term Care

There are two schools of thought about long-term care — protect your assets or pay the price



illustration by Benjamin Hjelm

In the near half-century since the Medicaid long-term care program has been created, it has transformed the basic notion that children are and should be responsible for caring for their elderly parents; fueled an enormous growth in nursing homes and created a cat-and-mouse game between the government and attorneys who try to shield their clients’ wealth to make them — at least on paper — poor enough to qualify for Medicaid and get free nursing home/skilled care. Between a tightening of the laws, a depreciating economy and concerns about cash distributions complicating family relations, that practice of shielding wealth has been curtailed in recent years. Still, the myth persists.

“It’s not as simple as it appears,” says Pembroke Attorney Tracy Culberson, who formerly ran the Elder Abuse division in the Attorney General’s office. “There are two schools of thought — one that is to protect everything, and the other is [an attitude of] ‘why should my neighbors pay for my care?”’ 

Medicaid and Medicare are companion programs signed into law on the very same day in 1965, and were cornerstones of Lyndon Johnson’s Great Society. In simple terms, Medicaid is a means-tested anti-poverty program and Medicare is an entitlement health insurance program for people 65 years and older. Since Medicare doesn’t provide long-term (or skilled) care and because such care is incredibly expensive (on average $8,000 per month), Medicaid developed a program for people with assets less than $2,500. There is no income qualification, but income — such as Social Security or a pension funds — will be applied to the overall costs of the care.

Prior to these programs being enacted, the elderly mostly lived with family members. In fact, this social responsibility was backed up by an age-old legal concept — known as filial responsibility laws — that obligate adult children to provide for their impoverished parents. New Hampshire is one of several states that still have these laws although they haven’t been used in many years, and some wonder how effective they would be at actually making people pay.  If the family option didn’t exist, the elderly person would be put in institutional settings alongside the sick, insane and abandoned.

At first the quality of nursing homes was grossly inadequate but in time, through greater regulation and more funding, they became more accepted and popular. And, of course, this acceptance was met with an expanded lifespan and more medical capacity to prolong life. The basic eligibility requirement was designed to exempt enough resources (and a primary resident) to protect the “community spouse,” who remains in the community and is not in a nursing home. “People do not want to see spouses impoverished or have a much lower standard of living” because their partners need skilled care, says Phil Curtin, a Manchester lawyer.

By the 1990s, this loophole created wholesale shifting of assets to avoid the costs of end-of-life care. Medicaid spending was skyrocketing and the laws governing Medicaid eligibility seemed increasingly inadequate. Today, six out of every 10 nursing home residents are on Medicaid.

The major change was to expand the “look back” period to five years prior to applying for Medicaid to see if wealth was transferred for the purpose of “intentionally impoverishing” for the purpose of getting Medicaid benefits. Transferring to a spouse and disabled child is exempt.  

"People do not want to see spouses impoverished or have a much lower standard of living."

Another change allowed states to place what are called Medicaid estate recovery liens against assets (mostly homes) for Medicaid services provided. They usually show up when the estate is settled and the assets are being liquidated.

Elder law attorneys say there are still ways to spend down assets, including making investments in or paying off a mortgage on a primary residence, which is, of course, exempt. While some attorneys advise clients to aggressively shield assets by moving them to their children or to an irrevocable trust, Exeter Attorney Kate Miller advises caution: “Things don’t always go well between parents and siblings.”

It is important to remember that, while these assets may be permanently protected from the government (provided that they are done five years in advance of applying for Medicaid), they may not be safe from free-spending children or from being caught up in a lawsuit, divorce or bankruptcy. Such an event may well be a surefire way to divide a family. 

But that’s not all, Miller says — it’s also about the quality of life, and with Medicaid the choices are limited. And since Medicaid reimburses facilities at around 50 percent of the actual costs, private-pay beds are much more desirable and profitable for the facilities.  

It is important to remember this process of trying to get on Medicaid is designed for people of modest wealth; wealthy people generally prefer a private pay option. For these clients, Miller suggests long-term care insurance and entering a continuing care retirement community, which offers various levels of services necessary for each level of aging.

In the end, Miller says, “It’s not just about the money.” Attorney Culberson agrees it’s a “huge psychological point. [It means] getting rid of all of their stuff and they are no longer in control.”

Both agree that nothing replaces planning to be able to get by the lack of communication and the dysfunction that defines many families. There is no simple formula that fits everyone.

“Talk early and often,” Miller says. “Options shrink when you don’t plan.” 

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