I'm Joshua Rae, Author of "How to Protect Your Life Savings from Nursing Homes" and Founding Member of Nursing Home Trusts, Ask Me Anything!

Hi AC:

Can you clear up something currently causing confusion with more than a few members. You tell us that Joshua Rae is legitimately Joshua Rae of Nursing Home Trusts. I get that. What isn't clear to me is his relationship with AC.

Is Nursing Home Trusts or Joshua an advertiser with AC for his Irrevocable Trusts, annuities, or whatever, or is he just someone that AC has asked to be on the Forum to give expert advice about Medicaid, but someone with no financial connection/partnership with AC, A Place for Mom, or any parent corp?

Joshua is clearly smart and very informed. My concern is that readers should know if he is an advertiser selling a product or if he is just here helping to answer questions. People are often easily confused and easily led when it comes to "asset protection" and sometimes desperate enough to buy risky products or products they don't have all the pros and cons on. That's really my only concern, and I hope before doing things they don't fully understand people will seek advice from a fiduciary advisor such as an elder law attorney.

Hi DesertRose,

I sent a long response to you yesterday, but I no longer see it! Hopefully I'm not duplicating efforts here.

Your case is the most common I encounter:
*Mom has a fall & breaks her hip and goes to the hospital for 3 or more days.
*Mom is discharged to a SNF for rehab. Medicare/private insurance can cover at most up to 100 days/year if discharged from a hospital with a 3 day+ stay.
*The 100 days elapse, and Mom still can't go home, so you start paying the full cost of the SNF on your own dime - $8,365/month national average.
*The family panics & realizes they're going to lose their entire savings in a matter of months. They either force Mom to go home when they shouldn't, find another cheaper facility & transfer Mom, or just pay the full cost and lose their entire life savings over a few months.

Let's set aside the different levels of clinical care that an assisted living can provide versus a SNF and focus just on the financial side. Could you have protected some or all of your Mom's life savings, have her stay in the original SNF, and receive Medicaid? Yes.

There are two main asset protection techniques that are utilized in Crisis Planning (financial planning within the 5 year lookback): Irrevocable Burial Trusts and Medicaid Annuities.

Irrevocable Burial Trusts
As Ben Franklin once said, "...in this world nothing can be said to be certain, except death and taxes". Medicaid allows for the individual in the nursing home to set aside a certain amount of money for their funeral or cremation (subject to state specific limits - normally 15K). This is an inevitable cost, and if not addressed, will fall onto the shoulders of grieving family members. It makes sense to setup, and the law allows it. Many nursing homes will even make you aware of this. What they wont' tell you is you are allowed to set up these trusts not only for the individual in the nursing home, but their spouse, their siblings, their siblings spouses, their children, and their children's spouses. Depending on how many family members qualify, sometimes simply setting these trusts up can take 100K of countable assets and instantly turn them into non-countable assets. **The policies for siblings and children must be set up carefully, as they can only include (burial space items) on the goods and services contract - many funeral homes do not know how to do these properly.**

Ultimately, instead of giving the 100K to the nursing home over the next 11 months, you could give 7 family members ~14K life insurance policies that are earmarked for burial expenses. It's not the sexiest financial product, but remember you're in a "use it or lose it" situation, & we set these up for free!

Medicaid Annuities
I already discussed these briefly in another post regarding a married couple (where these products really shine); however, Medicaid annuities are still often a great solution for single individuals. To keep it as simple as possible (these products are complex), a single individual can normally protect ~50% of their remaining countable assets with a Medicaid annuity.

First, we give half the money away - to friends, family, a church, whoever... This creates a penalty period with Medicaid, for it is an outright gift within the 5 year lookback. Next, we take the other half of the countable assets and place the funds in a Medicaid annuity to be distributed back to Mom to cover the costs of her care during the penalty period.

There's a lot of fine tuning involved - balancing income & expenses, actuarial life expectancies & other details. These are always done with the supervision of a professional & the Medicaid application should always be included in the package. There is also a cost $7500(our partner) - $20,000+(high end elder care attorneys), but effectively for a single individual the Medicaid annuity could have protected roughly 50% of your Mom's savings, she could have stayed in the facility, & received Medicaid.

So a quick overview of how the home works with Medicaid. Medicaid will allow you to ignore the value of one home(up to 688k in most states) and one car on the front end up application - sounds too good to be true right?.. Well it is, for as soon as Medicaid starts paying bills they tally up all their contributions, and after your loved one dies they will try to recoup their outlay during estate recovery. This is often when families "lose the home" or at least owe some portion of its value to the government and are forced to sell it to pay off the debt owed.

So how can you prevent this? Well there are several simple options if you're planning in advance - ahead of the 5 year lookback. Simply give the home to a family member you trust, or sell it to them for whatever price you want, and allow Mom/Dad to continue living there as long as needed. This can even be made official with a "life lease".

Outside of the 5 year lookback, planning in advance, it's very easy to protect the house. You could also place the home in an irrevocable trust, but that is not necessary for Medicaid protection, it is more of a safeguard against losing control if you don't have a family member you trust with such an important asset. The main point is, if you're concerned about losing the family home, get the home out of the elderly person's name 5 years or more in advance of needing a nursing home and Medicaid.

Now of course most people are taken by surprise by a nursing home stay, and don't do this preparation in advance. Within the 5 year lookback your options are much more limited, and simply placing a child's name on the deed will not protect the home, in fact it will likely cause a penalty period with Medicaid because adding someone to the deed is in fact gifting them a portion of a valuable asset. Simply adding the child(ren) to the deed even outside of the 5 year lookback likely won't protect the entirety of the home, because even though Mom and the children now own the home , Medicaid would still lay claim to Mom's portion of the home during estate recovery.

So, unless you fall under one of the 4 exemptions for transferring the home and not causing a penalty period, the only real means of protecting the house is selling it to another family member who can pay fair market value.

The 4 exceptions to transfer the home without a penalty period are:

1) A child of the parent in the nursing home lived in the parent's home for 2 or more years immediately prior to the nursing home and provided care that would have otherwise necessitated the parent being in the nursing home.
2) The parent in the nursing home has a child under the age of 21.
3) The parent has a child that is permanently blind or disabled.
4) The parent in the nursing home has a sibling who has lived in the home for 1 or more years and has an equity interest in the home (even 1%).

All that being said, even if you don't meet any of those 4 exceptions and Medicaid does try to recover the house after the death of your loved one, some states allow you to file a "Hardship Waiver" to prevent or reduce the recovery of assets.

There are some other more exotic techniques such as Lady Bird Deeds, sales based on "common level ratios", and Life Leases that can be effective in certain states, although they virtually always require an attorney's supervision. Hopefully this is helpful!

Hi tidalblue,

Thank you for your question. First, it's important to understand the differences between independent living, assisted living, and nursing homes when considering Medicaid. Independent living and assisted livings are almost always paid on your own dime, and even though Medicaid is available in some states for assisted livings, it does not cover room and board. Medicaid will only cover the full cost of care in skilled nursing facilities (nursing homes), so until your spouse requires that level of care, be prepared to shoulder the majority of costs.

Second, some good news. It is much easier to protect assets while applying for Medicaid when the individual in the nursing home has a living spouse. Even without professional planning, when one member of a married couple applies for Medicaid to cover long-term care costs, there's a keen understanding that the other spouse (referred to as the "community spouse") shouldn't be left destitute. To this end, the Community Spouse Resource Allowance (CSRA) was established. This allowance essentially lets the community spouse keep a portion of the couple's joint assets without affecting the eligibility of the spouse applying for Medicaid.

The exact amount varies by state, but there are both federal minimum and maximum limits set to protect the community spouse. In most states the maximum the community spouse can keep is $148,620 in countable assets (this amount excludes the value of one home and one car). States vary in how they count IRAs/401ks of the community spouse- some exclude it, other's count it.

Now even better news: a Medicaid annuity (sometimes called a single premium immediate annuity) can normally protect all of a couples assets during a Medicaid application. This is a complicated product, and should always be supervised by a professional, but medicaid annuities essentially convert a couples countable assets into a non-countable income stream for the community spouse. Effectively this means that if one spouse enters the nursing home and the other is still living independently in the community, a medicaid annuity can help them protect all of their assets.

The major exceptions to the effectiveness of medicaid annuities for married couples are when the couple owns more than one piece of real estate that they are unwilling/unable to liquidate, or cases where the couple owns a business(es) or other illiquid assets. The vast majority of elder care attorneys and some medicaid planning professionals offer medicaid annuities as part of their services. Expect to pay somewhere between $7500 (cost our partner charges) - $20,000 (higher end Elder Care Attorneys) for the service of setting up a Medicaid annuity and doing the Medicaid application.

I bring up all this detail to let you know that if your husband ended up needing a nursing home, you will be entitled to keep some level of savings by default, and by hiring a professional you will likely be able to keep the vast majority, if not all of your assets, and still get your husband on Medicaid. Given the effective strategies available to married couples, I do not feel that purchasing a home is the ideal way to protect assets when applying for Medicaid.

It's important to note that the medicaid annuities are not nearly as effective for single individuals entering a nursing home, as the best the medicaid annuities can do for single individuals is protect ~50% of their remaining countable assets.

Finally, for those planning well in advance, and have strong confidence they won't need a nursing home in the next 5 years (the Medicaid lookback period), consider moving your assets out of your name. You can gift your children your savings, home or business or establish an irrevocable trust with the help of an attorney. If you end up requiring skilled nursing 5 or more years from now, Medicaid will not require you to spend down the assets you moved out of your name before you receive financial support.

Hi Insomniac,

I understand your sentiment - I still experience it after 20 years! The complexity of Medicaid laws and planning techniques is daunting. If you are not in a "crisis planning" situation where a loved one needs a nursing home now, I recommend you seek out a local certified elder law attorney and check to see if they host any seminars or free educational classes - many do. Most will also provide a free initial consultation where you can discuss your main concerns and learn about your options.

Often times people avoid attorneys because of the costs, but in terms of asset preservation and Medicaid - there are many more options available to families who put plans into place 5 or more years before needing a skilled nursing facility and Medicaid, especially if your father is no longer living.

For those in a crisis planning situation - their loved one needs a nursing home and has assets that are countable by Medicaid that need "spent down" - visit our website or call a local elder care attorney ASAP. Time is of the essence: the average nursing home costs $8400/month, and every day you delay getting professional help will probably cost you ~$300.

Shameless plug: I did write a primer on nursing home asset protection. You can buy it on Amazon.

The most robust treatment of the topic I have seen is K. Gabriel Heiser's book "Medicaid Planning: From A to Z". I reference it almost every day.

Is this the type of advice you were looking for? If you elaborate on your concerns/situation I'm happy to be more specific.

Hi trials,

Unfortunately, like most Medicaid provisions, the rules are interpreted on a state-specific level. Here is the federal rule 42 U.S.C. §1396p(c)(2)(A)(iv) which the states use as their basis:

"(iv)a son or daughter of such individual (other than a child described in clause (ii)) who was residing in such individual’s home for a period of at least two years immediately before the date the individual becomes an institutionalized individual, and who (as determined by the State) provided care to such individual which permitted such individual to reside at home rather than in such an institution or facility;"

"Here is what one state requires from a child seeking to utilize this exemption:
1) a written statement from the parent's primary physician describing the type and amount of care provided by the child and the effect such care may have had on the parent's ability to reside in the home.
2) written documentation regarding the medical condition of the parent
3) copies of either: documentation from the Dept. of Social Services, canceled checks, bank statements, income tax forms or other documents showing that the child provided care and/or financial support to the parent; and
4) copies of the child's income tax returns for the prior three years or bank statements or bills in the child's name showing the parent's residence as the child's residence from two years prior to the date of the parent's entry into the nursing home and to the present date."
-from "Medicaid Planning: From A to Z" -K. Gabriel Heiser J.D.

In general, my understanding is you need to document that A) your parent would have needed to move into a nursing home if it weren't for your care (you'll need a physician's assessment for this) and B) what care you actually provided during these two years. Keep robust records! I have not heard of specific hours or weekly cumulative totals being required for this exemption.

I've also been told that normally it is best to make the transfer of the home under this provision after your parent has moved into the nursing home and been accepted to Medicaid, although I don't believe this is a strict requirement.

Warning to other readers, @trials is referencing a very specific exemption for transferring a home that does not lead to a penalty period with Medicaid. Most families cannot utilize this exemption. There are also 3 other exemptions which allow you to transfer the home in specific circumstances that do not create a penalty period. If this topic is of interest please reply to this thread and I'll be happy to delve into the subject at a deeper level.

Hi again Hopeforhelp22,

Regarding your question of sale of the home at "whatever price you want" vs fair market value - the key distinction here is whether or not you are within the lookback for Medicaid. If you are outside the 5 year lookback planning well in advance you can gift the home outright or sell it for whatever price you want. If you are within the 5 year lookback and in "Crisis Planning" you need to sell the home for fair market value or you'll cause a penalty period with Medicaid.

To answer your second question, once you have made the transfer you will need to provide evidence that you meet the specific requirements of the exemption. I would recommend that you compile this evidence as you go rather than try to put it all together at the last minute. For example, if you are a child caretaker living with Mom, gather together utility bills, tax statements and other documents showing you actually live in the home. Create a journal describing the care you are providing your parent and update it consistently. Some of the other exemptions are more straightforward and don't require as much preparation- i.e. showing that there is a child under the age of 21 or permanently blind or disabled child.

On to the 3rd question. Lady bird deeds and common level ratio sales are state-specific techniques that are not viable/useful in the vast majority of states. That is probably why attorneys aren't discussing them - they don't work in your state. Some states like NY allow for strategies such as Promissory Notes that aren't useful in other states. Another explanation is that attorneys, like all people, tend to operate with strategies they're comfortable with and have used successfully in the past. Local attorneys are best equipped to navigate these waters - they know the rules for their specific state, and even how the local Medicaid office interprets these rules.

Finally, no, our firm does not offer specific advice on home transfers and the 4 exemptions. The rules and regs are simply too complicated state to state, and although it's a service we'd like to offer in the long term, there's not enough national consistency for us to be able to offer these services at a professional level. Hopefully we'll get there some day! A local attorney, especially those credentialed as elder law or elder care are your best bet in these situations. Check out naela.org to find counsel with the appropriate knowledge.

Hi Babs2013,

Unfortunately your situation is beyond the scope of my knowledge. I recommend you contact an attorney in NH.

Adding: I don't have enough money for both of us to spend on nursing home, and do have LTC, and plan to buy LTC for husband when he reaches age 60.