Yesterday I spoke to Jill, whose mom and dad have been talking to their friends. They have mentioned to Jill that they are getting nervous that they need to do some Estate Planning. They know that many of their friends have established a “trust”, but do they really need to do that since all they have is a house? Should they protect their house from the nursing home? I explained their options:
Do nothing but a great Durable Power-of-Attorney with unlimited gifting. This way when one of them gets sick, the home can be transferred to the well spouse and no one can touch the home for the time being. The problem with this plan is, once the first spouse gets sick, you have to then start planning for the second spouse. If the “well” spouse passes before doing any planning, the “sick” spouse will likely inherit everything and we will have to spend some down on that spouse’s care. “Option 1” is not a very good option.
Transfer the home to children or other relatives, with a life estate for mom and dad. This option will allow Mom and Dad to remain in the home for their lifetimes. The home cannot be sold without their permission. Additionally, they will be able to maintain any real estate tax exemptions (i.e. veteran’s and enhanced STAR). However, if the home is transferred and Mom and Dad do not get through a lookback period, Mom and Dad will have to rely on all of the other owners to transfer the home back so that the home can be protected. The home has the potential to be exposed to a bad marriage or credit problems of another owner (i.e., their child). There are also capital gains tax concerns if the house is sold during the parents’ lifetimes. “Option 2” is better than Option 1, but still has multiple drawbacks.
Transfer the home to a revocable trust. This option is not the right option if Mom and Dad are looking to do long-term care planning. This option still gives Mom and Dad access and control over the home. There are less concerns if the home is their primary residence, but, as in Option 1, there are issues that arise if one spouse passes and the home needs to be sold because the other spouse can no longer live there safely. If they are looking to protect their home from a long term illness, “Option 3” can help, but it is not the best option….keep reading.
Transfer the home to a Medicaid Asset Protection Trust. This is typically the best option all around. With the transfer and a properly drafted trust, Mom and Dad will maintain any real property tax exemptions. The home will not be considered an asset of Mom and Dad’s, even if sold. Mom and Dad have the right to live in the home for their lifetimes without being required to pay rent to the trustees. If Mom and Dad cannot get through the 5-year look-back period without needing a nursing home, the house is in the trust and the trust can be revised to return the house to Mom and Dad so that they can explore other options.
While the plan to protect your house from a nursing home seems to be pretty cut and dry, it is very important to discuss your options with an Elder Law Attorney, just in case your family meets any exceptions under the law that would add even more options.