10 Reasons Why It Might Be A Bad Idea To Transfer Assets

Asset Transfers That Can Create A Period Of Ineligibility For Medicaid
An Urgent Message For Families About Medicaid
Long-Term Care Insurance Completes Your Financial Plan/Eligibility Requirements
Why Transferring Assets Can Be A Bad Idea
Long-Term Care Insurance - A Better Way

Asset Transfers That Can Create A Period Of Ineligibility For Medicaid

• Setting up a joint checking account with a son or daughter, then removing the parent’s name from the account.
• Putting a home in the name of a son or daughter or other family member or friend.
• Transferring assets into an immediate annuity, which changes the assets into income. (Medicaid compares the amount of the annuity with your life expectancy. Any projected payout within a designated “look-back period” that exceeds life expectancy is treated as a transfer and will trigger a period of ineligibility.)
• Transferring assets into a trust to fund a college education for a grandchild.
• Setting up a trust that will benefit a charity after your death, so you can receive the income while you are alive.
• Setting up a trust that will benefit a charity after your death, so you can receive the income while you are alive.
• Donating to a “pooled-income fund”—similar to a mutual fund operated by a charity for smaller investors to reap the tax benefits of charitable giving without having to invest large amounts.
• Transferring $11,000 per year ($22,000 if you are married) to your children and grandchildren to stay within the Federal gift-tax exclusion.

An Urgent Message For Families...

A recent study predicts that elder care will replace child care as the #1 dependent care issue by 2005 because 1 out of 3 workers will be caring for an aging family member.1 If there is any possibility you will be a caregiver, the quality of life may suffer for you and your family. And, if you want your spouse, your Mom or Dad or other family member to receive the same treatment as a private-pay patient, you don’t want that person on Medicaid. Investigate long-term care insurance for your family members while health is good and insuring is an option. Policies are available to people in good health from ages 18 and up.

Long-Term Care Insurance Completes Your Financial Plan

Medicaid* is the welfare program for the indigent jointly funded by Federal, state and sometimes local governments. Part of Medicaid goes to help young families and dependent children, but the “aged and disabled” who make up just over a fourth of the people entitled to Medicaid benefits consume almost two-thirds of the benefit dollars.2 The driving force behind this inequity is nursing home costs.

The Medicaid nursing home benefit is intended for people with low incomes and very low assets. This means that an applicant has to meet both income and asset criteria to qualify.

*MediCal in California

Income: A few states allow you to have income up to $1,656 a month for 2003, and a few more allow income up to the private pay cost of nursing home care. To qualify in most states, however, your income must be below the Medicaid rate for the nursing home, which is usually lower than the private pay rate—$2,500 to $3,500 a month is common. You are allowed to subtract certain deductions to get your income low enough to qualify, the main one being to transfer enough of your income to provide your spouse at home with a minimum of $1,493 (eff. 7/1/02–6/30/03) per month and a maximum of $2,266.

Assets: Your assets must be down to about $2,000 (varies a little by state) and the most your spouse can keep is $90,660. Your house and car are not counted if you are married. Any account that you can take money out of counts as an asset, whether or not you take the money at a loss or experience a penalty: checking/savings accounts, certificates of deposit (CDs), money market accounts, mutual funds, stocks, bonds, deferred annuities, cash value in most life insurance policies, revocable living trusts (most are), retirement accounts, such as 401(K)s, IRAs, Keoghs, etc. (in most states) and burial trusts beyond a minimum amount. All assets are considered joint, no matter which spouse’s name assets are in, regardless of a pre-nuptial agreement.

Look-Back Period: When you apply for Medicaid to pay nursing home expenses, Medicaid looks back 36 months to see if you have given your assets away, such as to your children, or 60 months to see if you transferred your assets to an irrevocable trust (a trust that won’t let you take the money back out). If a transfer is discovered, you are not eligible for Medicaid for a period of time equal to the amount you transferred divided by the average monthly cost of care in your area. Example: $300,000 ÷ $3,500 = 85.7 months, or 7.1 years, of ineligibility. In addition to the penalty period, states are required to recover what Medicaid paid at the death of the second spouse, which includes the right in most states to place a lien upon your home.

The escalating cost of long-term care ($60,000-$140,000 annually)3 and loopholes in Medicaid eligibility laws have encouraged a growing number of Americans to transfer assets to capture public funding intended for poor people; i.e. Medicaid, to pay for nursing home expenses. Some people even consider Medicaid a right as a taxpayer. If you qualify for Medicaid either by spending down most of your assets or transferring your assets around the loopholes, you lose the one thing that matters most—your independence and control. Here’s what it means to be a Medicaid patient in most states:

1) being in a nursing home as Medicaid typically pays very little for home health care, 2) being in a nursing home perhaps hours away from your family because of long waiting lists at Medicaid nursing homes, and 3) generally not being treated like a private-pay patient with a wide range of choices for care.

Why Transferring Assets Can Be A Bad Idea.

Divorce: Half your assets go to buy your favorite son-in-law or daughter-in-law a red BMW!

Financial Difficulties: Every family has financial downtimes. Your daughter is thinking “I’m going to inherit the money anyway . . .”

Mis-Use of Funds: It looked like the best stock pick of the century.
Lawsuit: Your son is sued and your assets—now his assets as far as the court is concerned—are attached.

College Financial Aid: Your grandson no longer qualifies for financial aid because you shifted your assets to his father or mother.

Cost-Basis: You paid $10 a share for the stock you just gave your daughter. It is now worth $100 a share. She will pay tax on the gain of $90 per share when she sells the stock.

Early Death of Adult Child: The unthinkable happens—your son or daughter predeceases you. You find yourself dependent on your son-in-law or daughter-in-law.

Potential Medicaid Legislation: Congress appears to have an interest in limiting access to Medicaid benefits to truly poor and needy Americans.

Tax Increases: With less than four people working for every Social Security beneficiary, it’s easy to see that utilizing scarce public dollars from the Medicaid program to pay for the babyboomers’ long-term care will result in unprecedented taxation for all of us.4 Sweden has a national long-term care program and a tax rate of over 50%!5

Limited Choices: The reason of all reasons. Medicaid patients are told what kind of care they will have and where they will have the care.

Long-Term Care Insurance — A Better Way

The message sent by the Federal government when laws are passed to discourage asset transfers to qualify for Medicaid is clear: Medicaid is a program for poor people and is not to be used by middle and upper income Americans.

Many reliable publications such as Suze Orman’s The 9 Steps to Financial Freedom (Three Rivers Press, 2000), and Kiplinger’s Retirement Report (2003) encourage people to purchase long-term care insurance instead of relying on Medicaid. Financial advisor Jane Bryant Quinn (The Washington Post 6/30/01) says that Medicaid planning is unethical and she, too, encourages people to buy long-term care insurance instead.

So beware of anyone who advises you to transfer assets to artificially impoverish yourself so that Medicaid will pay your nursing home expenses—not only is this kind of action morally and ethically questionable, it can result in serious legal and financial consequences, and not all attorneys fully understand those consequences. In many cases the tax ramifications of transferring your cost-basis for your assets and/or your home cost far more than a lifetime of premium for a long-term care policy!

And ultimately, the transfer may prove to be ineffective, if there are no Medicaid beds available when you need one. Even today, some communities have waiting lists of a year for Medicaid beds!

The primary reason people are purchasing long-term care insurance is to maintain choice, and consequently, independence.6

If you are the type of person who enjoys being in control, a long-term care insurance policy may be the only thing that makes it possible for you to stay in control by guaranteeing that you will have decision-making power when you need long-term care, which means choices other than a nursing home — home health care, adult day care, and the beautiful private-pay assisted living facilities that represent the fastest growing form of long-term care.

So, don’t pass the buck. Stay in control of your life by taking responsibility for your own long-term care by purchasing a long-term care policy—the private sector’s solution to the real health care crisis in America.

FOOTNOTES:

1. Morris, Ellen Birkett, “Employers Finding Ways to Help ‘Sandwich Generation’”, Business First (The Conference Board), Week of January 3, 2000 (weekly publication)
2. “State Budgets Under Stress: How are States Planning To Reduce the Growth in Medicaid Costs?”, Kaiser Commission on Medicaid and the Uninsured, 7/30/02, p.5
3. “MetLife Market Survey on Nursing Home and Home Care Costs, 2002”, MetLife Mature Market Institute
4. “Long-Term Care: Aging Baby Boom Generation Will Increase Demand and Burden on Federal and State Budgets”. General Accounting Office, 3/21/02, p.7
5. Swedish Embassy, Washington, DC, 1/03
6. “Who Buys Long-Term Care Insurance in 2000?”, Health Insurance Association of America, 10/00, p.28

Report developed by LTC  Consultants, a division of Shelton Marketing Services, Inc. Nashville, Tennessee ©2003 Shelton Marketing Services, Inc.

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