The Greatest Financial Risk for Seniors:
Paying for Long-term Care, Part XXI
(When the Aunt of a Disabled Niece Needs Long-Term Care)
Last month’s article explained how Helen, a woman in her 70s who had recently been diagnosed with Alzheimer’s, could protect nearly all of her life savings for the benefit of her disabled son Jack and qualify almost immediately for Medicaid if she later needed nursing home care.
Her friend Joan was very interested in what Helen and I discussed in the meeting, and she asked about what steps she might be able to take to prepare for her own future, should her health start to decline. “What will happen if I later need nursing-home care?” asked Joan. “You said Medicaid has special rules for ‘disabled children,’ but I never had children. However, my brother’s daughter, Lucy, has been like a child to me, but she was born with Down’s Syndrome, cannot manage by herself and will always need someone to care for her. I would like to leave money in my Will for Lucy’s benefit to enhance her quality of life. But Lucy receives some public benefits and that don’t allow her to have more than a few thousand dollars. And, in any event, if I later need long-term nursing care, at the rate of up to $120,000 or more a year, all of my life savings would be gone in just a few years, and nothing left for Lucy.”
“I know you have a lot to be concerned about right now,” I tell Joan, “but, just as I told Helen, paying for long-term care does not have to be one of them.” Because her niece, Lucy, meets the legal definition of “disabled,” if Joan ever needs long-term care in a nursing home, she can transfer her assets into a special type of a trust (called a “C2B4” Trust) which will allow her to qualify for Medicaid immediately to pay for her nursing-home care. Unlike outright gifts to persons with disabilities, which will only avoid creating any period of ineligibility if made to a disabled “child,” gifts to a C2B4 trust can be made to any individual under age 65 with a disability.
What is more, the money in the trust will not affect Lucy’s own eligibility for SSI and Medicaid. This means that Medicaid can continue to be available to pay for Lucy’s medical care, and the trust can then be used to supplement this basic care to enhance Lucy’s quality of life. As with transfers to a disabled child, transfers of money into a trust which meets the specific C2B4 requirements can be done with no “transfer penalty” for Medicaid. As a result, Joan will be able to get the care she needs without first having to spend all of her life savings. At the same time, the assets Joan put into the trust for Lucy’s benefit will not affect Lucy’s Medicaid eligibility, and therefore will be available for Lucy’s benefit for many, many years to come.
Joan was very relieved to hear that she could now just focus on getting the care she needs, both for herself and for Lucy, without having to worry about how to pay for it.
It would also be possible for Helen and Joan to transfer an interest in their homes to their son or trust for their niece in order to avoid “any estate recovery” claim after their deaths. While this would have to be done carefully to make sure that all the legal requirements are met, with the assistance of a qualified elder law attorney both Joan and Helen should be able to protect their homes and their entire life savings from the cost of long-term care, provide for their disabled loved ones far into the future, and get the healthcare they themselves need.
The next two articles in this series will step back to take a broader look at the public-policy implications of this particular form of estate planning: Is Medicaid Planning Legal? and Is Medicaid Planning Ethical?
The content herein is for general informational purposes only and does not constitute legal advice. For specific questions you should consult a qualified elder law attorney.
Note: Contrary to what almost everyone believes, if you or a family member has been admitted to a nursing home, it is NOT too late to protect assets. The Medicaid laws give seniors the option to protect a significant portion of their life savings, even when facing an immediate crisis, with no advance planning. However, “time works against you” when planning for long-term care; every day of delay in a crisis can result in $200 to $300 or more of irretrievable loss, so it is important that families who have a spouse, parent or other loved one needing long-term nursing care contact a knowledgeable and experienced elder law attorney for advice as soon as possible.
Kemp Scales is now retired, but elder-law attorney Schellart Los continues to serve clients throughout western Pennsylvania from offices in Erie and Titusville. She can be reached toll-free at (888) 827-2788 or by e-mail at firstname.lastname@example.org. Los Scales Elder Law, LLC has an Internet presence at www.losscaleselderlaw.com.
After questioning Joan further, I see that the public benefits Lucy is receiving are Supplemental Security Income (SSI) and Medicaid, both of which are “means-tested” benefits – that is, they severely limit the amount of assets recipients can have in their names – in Lucy’s case, no more than $2,000. ↑
The name comes from the section of the federal Medicaid law, 42 U.S.C. §1396p(C)(2)(b)(iv), that creates the gifting exception for these trusts. ↑