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Options to Protect the Primary Residence from Long-Term Care Costs

Pam_144pxIf you are following along with the irrevocable trust saga, you know that on January 5, 2017, the Supreme Judicial Court heard oral argument on two irrevocable income only trusts where the MassHealth applicant placed his or her primary residence into the trust prior to applying for nursing home benefits.  It was incredible to watch the attorneys argue their opposing sides before the panel of elite judges at One Pemberton Square.  One of my clients lovingly called the hearing “the Superbowl of Elder Law” (but I think he was making fun of me).  With the fate of irrevocable trusts literally hanging in the balance, what other options do we as elder law attorneys have to advise our clients on how to protect their primary residence from the placement and collection of a MassHealth lien?  Since the home is often our clients’ most valuable asset, preserving the home from a MassHealth lien often feels like the million dollar question.  Here are some options:

  1. Consider purchasing long-term care insurance before it’s too late and too expensive. Under the MassHealth regulations, a policy which meets minimum requirements of $125/ day of nursing home care coverage for a period of two years will prohibit MassHealth from placing a lien on the applicant’s non-countable Massachusetts primary residence.  An added benefit—often these policies are absolutely crucial in allowing seniors to age in place with private-duty home care services or pay for assisted living care where there are minimal public benefits available.
  2. Consider the pros and cons of a life estate deed. The actual concept of a life estate deed is simple to explain and even simpler to execute, however the devil lies in the details which is why it is critical to be fully versed in all of the ramifications of executing a deed with a retained life estate before giving away a substantial interest in your most important asset.  In a typical life estate deed arrangement, the grantor-parent transfers the property to the children but reserves the right to reside in the property for his or her lifetime.  MassHealth may still place a lien on the home should the life tenant ever apply for MassHealth benefits, however, MassHealth releases its claim at the death of the parent and the lien is extinguished.  The end result is that the property passes to the children without any encumbrance or need to go through probate.  However, some unintended consequences of life estate deeds may include capital gains tax issues, difficulty in mortgaging/refinancing the property, creditor claims and even uncooperative or self-interested children (and spouses of children).  While life estate deeds may seem like a terrific substitute for irrevocable income only trusts, there are many issues to consider before jumping into this option.
  3. Consider an outright transfer of the property. Sometimes a simple “get all of the assets out of mom’s name and into the kids’ name” approach seems tempting.  However, this is usually not the best strategy for our clients.  The above-mentioned issues with life estate deeds are present here in an even worse way.  There are capital gains tax consequences, potential creditor issues, and of course, the ever present evil child syndrome.  But perhaps the most important concern is more of an intangible one—financial independence and autonomy of our clients.  It is important to remember that actions taken to “protect the primary residence” do not benefit the parent directly.  Such actions allow parents to take some comfort in knowing that if they ever need nursing home care something has been done to increase the chance that some inheritance will pass to their children.  However, our focus had always been on helping our clients achieve their most important goals which often means staying in their homes. With many more options for care coming to the marketplace each day—most of which are not covered by MassHealth—giving away assets to achieve Medicaid eligibility to pay for long-term care is often not in keeping with the goal of remaining at home.  Don’t get me wrong, as elder law attorneys, it pains us to see elders spend their life savings on nursing home care when there were viable options for preserving assets.  However, giving away assets to achieve future Medicaid eligibility is sometimes contrary to our clients’ goals for themselves and we focus first on those goals before recommending a plan that deprives our clients of their interest in the primary residence.

If you have specific questions about protecting your home from long-term care costs, please call me at 781/461-1020.