You have worked hard all your life. You also have tried to save, but some financial emergency usually came up. You did not save as much for retirement as you wanted to put aside. Unfortunately, you are not alone.
According to government statistics, nearly one in five people in the US age 65 or older have no retirement or other savings. The average that all Americans have saved for retirement is $35,000. That doesn’t seem like much to get you through the next 30+ years of retirement. I guess the golden years are not so golden.
There may be a time at which you no longer can care for yourself alone. You may need some assistance. You do not see very many options because of your fixed income, your savings, or lack thereof, and the value of your home. You may even have some debts.
What you and your family may not realize is that there are frequently many options for you in this situation. Some of the options may require planning. Fortunately, much of this planning can be done when you are entering the nursing home or nursing home admission is imminent. Some of the planning may even keep you out of the nursing home.
Let’s say you have savings of about $20,000, your home is worth about $50,000 and your monthly income from Social Security and a small pension is about $1,500 per month. Unless you are a veteran or a single surviving spouse of a veteran, in-home care is probably financially out of the question. Even if you used all your income for the care, at $20 or so per hour for a caregiver from a homecare agency, you would get less than 20 hours per week service.
To make the funds go further, you may be tempted to hire someone directly at $10-12 per hour as an independent contractor, and give them a 1099 at the end of the year. DON’T! Legally, anyone you hire directly for this type of work is your employee and not an independent contractor.
Since you now have an employee, you must withhold income taxes, Social Security and Medicare and cover your employee with unemployment and workers compensation. And as an employer, you have to also pay the employer’s share of Social Security and Medicare and keep up with all the weekly, monthly, quarterly and annual filings.
If you are a veteran or a single surviving spouse of a veteran who served during wartime, you may be able to get financial assistance for in-home care. If you meet the medical needs, income and asset tests, you may eligible for Veteran’s Pension or Death Pension, also called Aid and Attendance. This benefit ranges from about $700 per month to a little over $2,000 per month depending on the type of claim and the medical rating involved.
There are assisted living facilities, including adult foster care homes, that may make sense. And someone is there 24/7/365, just in case. If you find a facility for $1,500 per month, and if you sell your house or your loved ones pay all your house expenses, then you could live in the facility virtually indefinitely. If you are a veteran or a single surviving spouse of a veteran, you may be eligible for Aid and Attendance to help pay for this type of assistance outside your home.
However, there may be a time when you need more care and have to move into a nursing home. You are probably told by the nursing home that you have to spend down your savings on nursing home care until you only have $2,000, and then you can apply for Medicaid to pay for your nursing home expenses.
While you are in the nursing home on Medicaid, your loved ones have to pay for your house expenses. And after you are gone, Medicaid estate recovery requires that your loved ones sell your house to pay back the state for any Medicaid benefits paid on your behalf. Your loved ones may not get anything.
What you are not told is that your savings do not need to be spent down on the nursing home before you qualify for Medicaid to pay for your nursing home expenses. You could buy a qualifying prepaid funeral and spend up to $12,130, in 2015. The remainder could be spent on home repairs, such as a new roof, carpeting or appliances. Once the funds were spent down on these qualifying or exempt expenses, you would immediately be eligible for Medicaid to pay for your nursing home expenses.
You can also avoid probate and Medicaid estate recovery by signing a transfer-on-death deed. Your home would go straight to your loved ones upon your death. The state would not have any claims against your home to pay back Medicaid. If you are mentally incapacitated and have given proper gifting powers to your agent in your financial power of attorney, then the agent could sign a transfer-on-death deed on your behalf.
And then if you sell your house, you are told you no longer qualify for Medicaid since you have more than $2,000 in countable assets. You have to private pay the nursing home until the house proceeds are spent down, and then you can re-apply for Medicaid.
Even if you sell your house, it may not disqualify you from Medicaid to pay for your nursing home expenses. For example, you could close on the sale of your house at the beginning of the month and use the net proceeds to buy a vehicle before the end of the month, even if you don’t drive. A vehicle is an exempt asset just like your home.
You have just traded one exempt asset for another. You continue to be eligible for Medicaid to pay for your nursing home expenses, with no breaks. And because a vehicle can be transferred to your next-of-kin after death without probate, it is not subject to Medicaid estate recovery. Your loved ones get to keep the car.
Every case is different. Today, we have only discussed a few of the possible situations and tools provided to protect asset for you and your loved ones. Medicaid and asset protection planning is not for do-it-yourselfers. This often results Medicaid ineligibility for many months and additional costs and expenses. Do not attempt to do this on your own. Consult with a knowledgeable elder law specialist, who can advise you properly.
By: Matthew M. Wallace, CPA, JD
Published edited April 5, 2015 in The Times Herald newspaper, Port Huron, Michigan as: Small estates provide many living arrangement options