If you went into the nursing home, would you like your assets go to the nursing home or to your loved ones? This is a question that we ask each of our estate planning clients. For most all of our clients, the answer is loved ones. In that event, we make sure that the proper instructions are in their estate planning documents to protect the maximum amount of assets that is allowed under state and federal laws.
You have worked hard your entire life. You have saved up a nice little nest egg for yourself, so you can use it if you need it, and then pass it down to loved ones. Under current Medicaid rules, with proper planning, if you are married and one of you are in, or going to, the nursing home, you can protect all of your assets for the well spouse. You do not have to use any of your assets to private pay any nursing home expenses.
Similarly when you are single. Under current Medicaid rules, with proper planning, if you are single and are in, or going to, the nursing home, you can protect about half of your assets for loved ones. And you would only need to spend down the other half of your assets on nursing home care.
Have you done everything necessary to protect your assets during your lifetime and after you are gone? At a minimum, you should have financial and health care powers of attorney and a will. You may even benefit from a trust. But just having these documents in place is not enough, they must have the proper instructions in them.
What you may not know is that the instructions you have in your financial power of attorney are key to how your assets can be protected for you and for your loved ones in the event of your or your spouse’s nursing home admission.
It is often the case that by the time you are admitted to the nursing home, you no longer are mentally capable of making your own decisions. Your loved ones are making them for you with the instructions that you have left in your financial and health care powers of attorney, and maybe your trust.
If you do not have the proper instructions in your financial power of attorney, your loved ones may be unable to protect your assets in the event of your admission to a nursing home. Instead of going to your loved ones as you intended, those assets will be spent down by some $8,000, or more, per month for private pay nursing home care.
To protect your assets when you are in the nursing home, you need to be able to make transfers of assets to your spouse or other loved ones. For you to be able to make these transfers, you either have to be mentally capable of making those transfers, or you have given appropriate instructions in your financial power of attorney.
Your financial power of attorney must have specific authority to make these transfers to protect your assets through very broad gifting powers. There must be specific provisions to allow your financial agents to make gifts of your assets to your spouse or other loved ones. If you want your financial agents to make gifts to themselves, there must be specific provisions indicating such.
Most of the financial powers of attorney that have been brought to our office for review do not include the appropriate language. Some financial powers of attorney prohibit gifting all together. Others limit gifts each year to the federal gift tax annual exclusion amount, which in 2017 is $14,000. Some others only allow the continuation of existing gifting programs.
Other annual limitations that we have seen in financial powers of attorney is that gifts cannot exceed the greater of five percent of your assets or $5,000. Another gift limitation we have seen in financial powers of attorney is that no gifts can be made to the financial agent.
Any of these limitations can have detrimental effects on protecting your assets in the event of the nursing home admission of you or your spouse. In order to protect the maximum amount of your assets, the gifting power in your financial power of attorney must allow your financial agent to make transfers of substantially all of your assets to your loved ones. If you want your agent to be able to make gifts to him or herself, there must be a specific provision stating such.
You have to be very careful in choosing your agent in your financial power of attorney when you are giving him or her these broad powers of gifting. A financial agent who is not trustworthy or is in financial difficulty may be tempted to make gifts to him or herself when you still have financial needs. If you have any concern that a prospective financial agent can’t be trusted or would use your assets for his or her own benefit, choose someone else.
You do not necessarily have to choose your spouse or your oldest child as your financial agent if money management skills are not one of the gifts that God has given them. Not only should you choose a financial agent with good money management skills and who can be trusted, you should choose at least two similarly qualified backup financial agents. In the event that an agent cannot act, your wishes can still be fulfilled without probate court intervention.
I have seen a number of situations in which the named financial agent or agents died, or otherwise could not act, which then necessitated a probate court supervised conservatorship. This was contrary to the person’s intent of avoiding probate court involvement by having a financial power of attorney in the first place.
If you would rather have your hard-earned assets go to your loved ones instead of the nursing home, you should consult with a qualified elder law attorney who has experience in these matters. If your financial power of attorney does not have the proper language to allow your financial agent to make gifts and to do this asset protection planning and you are still mentally capable, you can have a new financial power of attorney drafted that includes the appropriate language.
However, if you are not mentally capable, your options are limited. In certain instances, your well spouse may be able to go into court and request that the court enter an order allowing a transfer of the assets to the well spouse. In other instances, there is little that can be done because you did not have adequate instructions in your financial power of attorney.
With proper advice and counsel, you can control your property while you are alive and well, provide for you and you loved ones when you are mentally disabled, and after you are gone, you can give what you have to whom you want, when you want, the way you want, all at the lowest overall cost to you and your loved ones.
By Matthew M. Wallace, CPA, JD
Published edited July 16, 2017 in The Times Herald newspaper Port Huron, Michigan as: Protecting assets in the event of nursing home admission