Aging adults sometimes transfer their property outright to children in order to avoid using their life’s earnings on long-term medical care.
My advice? Don’t do it.
There are a myriad of pitfalls to this practice, including:
- Having to turn to one’s children in times of need
- Increased capital gains taxes to the children when they sell the property or asset after the death of the parent
- Exposure of one’s assets to the children’s creditors
- Potential loss of federal benefits under Medicaid
Medicare is federally sponsored medical insurance for the elderly and pays for medical treatment regardless of your financial situation. Taxes have been withheld from your pay through the years to pay for this coverage. However, Medicare does not cover long-term care in nursing or custodial facilities.
Medicaid, on the other hand, is a federally funded welfare program administered by participating states. It is designed to pay for medical treatment, including long-term nursing or custodial care, for the very poor. Funded by federal income taxes, Medicaid is only available to those who qualify financially in both income and assets.
Presently, Medicaid will deny eligibility for a period of time to any person who transferred an asset out of his or her estate within a “look back period” of five years. The ineligibility period runs from the time of application for Medicaid benefits through the number of months equal to the value of the disposition divided by statutory nursing care costs. For instance, if a person transfers assets worth $120,000 and the statutory nursing care costs are $4,000 per month, the individual would be disqualified from Medicaid coverage for a period of 30 months (120,000 divided by 4,000). There is no limit on the disqualification period.
As someone with decades of experience in estate planning, I’ve come to believe it is in most clients’ best interests not to transfer assets outright to children in an attempt to qualify for Medicaid benefits. Rather, if such planning is truly desired and necessary, proper irrevocable trust planning usually provides greater security and flexibility, and can avoid most of the issues outlined above.
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