When George came into my office, he was distraught. His wife, Linda, had been in a care facility for about three weeks following a stroke, and it did not look like she would be coming home. George wasn’t sure how he could pay for her care, protect his own financial well-being and leave a small legacy for his children. His main concern: Would he have to sell the marital home to afford Linda’s care?
Fortunately, George and Linda had wills, durable financial powers of attorney, health care powers of attorney, and even long-term care insurance. Still, he wasn’t prepared for Linda needing round-the-clock care. This was still going to take a significant chunk of their savings.
George, who was healthy and enjoyed spending time with his granddaughter, also had another question: If he sold his house and moved in with his daughter or bought a small condo, would he be required to use the proceeds to pay for Linda’s care?
There are so many significant money issues surrounding long-term care. But like the saying “How to eat an elephant: one bite at a time,” we’ll concentrate on just the house.
First, the Grim Statistics
When anyone enters a nursing home situation, the cost of care and the possibility of Medicaid helping to foot the bill always loom in the background. As advisors of senior clients, it is our duty to know and understand the cost of care. It isn’t difficult to find that the average cost of care can very quickly run into the tens and hundreds of thousands of dollars.
Additionally, the overwhelming majority of people want to age in place. Nearly 9 in 10 (88%) respondents ages 50 to 80 surveyed by the National Poll on Health Aging, at the University of Michigan, said it was very or somewhat important to live in their homes as long as possible.
In reality, some seniors will not be able to age in place. But that does not detract from the fact that the healthy spouse also wants to remain in their home.
Swimming with the Sharks
The healthy spouse often wonders how they can keep their house or maintain their living situation. This conversation is often sorely missed by their trusted advisors, yet it presents significant planning considerations.
Under the Medicaid rule, the primary residence is an exempt asset, meaning it’s not factored into determining Medicaid eligibility or repayment. But it’s not always so simple.
If the Medicaid applicant is single and they qualify for Medicaid benefits, they must declare that they intend to return to living in their house. That is shark-infested waters: How do we know they can return?
The generally accepted rule is that one intends to return to their home unless otherwise stated.
Should that single Medicaid beneficiary still own the home upon death, the proceeds of its sale are subject to Medicaid estate recovery — repaying what Medicaid paid for their care (a subject for another day).
For married couples
The marital home is protected for the healthy spouse (often referred to as the “community spouse”) who continues to live in the home. This means that George and Linda’s house is not counted as an asset that can be used to pay for Linda’s institutionalized care. This seems reasonable, until the healthy spouse no longer wants to live in their marital home.
Prior to Linda’s stroke, she and George had considered downsizing to a smaller home or even a rental apartment. George was now concerned that any money he received from selling his home would have to go to Linda’s care. And it would, unless he took all the proper steps to protect the assets for his own well-being.
A healthy spouse should immediately take action to protect that house and the proceeds from the sale. Let’s look now at some of the rules.
First, it’s important to understand that this Medicaid house-protection provision only applies to spouses. Transferring assets between spouses is not the same as giving assets to your children.
It is important to legally transfer ownership of a jointly-owned house to the community spouse once he or she realizes that their institutionalized spouse will not be returning home or is close to qualifying for Medicaid-covered nursing home care.
When the institutionalized spouse is approved for Medicaid, the healthy spouse can then sell the home that is now solely in their name. The healthy spouse can use the proceeds in any way they wish; the proceeds do not become available for the sick spouse’s care.
Averting a Housing Crisis
George was Linda’s agent under her financial power of attorney so he had the legal authority to transfer the deed to himself. Without that power of attorney, George would not have been able to transfer the home to himself because Linda was no longer able to make informed decisions or sign legal documents.
Many of your clients are under the impression that as a spouse they have unfettered legal authority to sign documents, access IRAs, or even retitle property. You may know that is not true. But trust me, many of your clients do not know that. That power of attorney is critical to this planning.
So how do you manage the “house” dilemma?
- Make certain your clients have the legal authority they need to take or transfer legal ownership of the marital home.
- Transfer the deed from joint spouses to healthy spouse only.
- Consider creating a new will that leaves the estate of the healthy spouse to heirs who are not the institutionalized spouse.
Making a Hard Conversation Easier
George was very uncomfortable taking Linda’s name off the deed of the home they owned together for more than 35 years. He couldn’t discuss it with her because the stroke left her with diminished mental capacity. But George understood this was an important step once we explained it to him. He wanted to leave his assets to his children and grandchildren and was afraid that all his money would go to Linda’s care if he didn’t change the deed.
We also explained to George that creating a will that left his estate to his heirs, and nothing to Linda, would allow the bulk of his estate to go to his children and grandchildren if Linda were to receive Medicaid-covered nursing care. If he didn’t draft his will this way, Linda would be required by Medicaid rules to make a spousal election claim against his estate if he predeceased her; her claim would be one-third of the probate estate.
A spousal election is always required when a healthy spouse predeceases an institutionalized spouse in states that have such a law. Proper planning just makes it possible to choose which assets are available to the institutionalized spouse and how much he or she will receive. In George’s case, the amount Linda would receive from his estate would be significantly more if he failed to exclude her from his will.
Getting an early start
Many spouses, especially those who have been married for decades feel that changing the deed is a betrayal of their marriage vows. Additionally, many spouses want to leave their estate to their institutionalized spouse to supplement their care. This can be done with specific trusts, but trust conversations are for another day.
I try to gently remind the healthy spouse that no one would want them to live a destitute life, especially not their ill spouse. And early in a client relationship, I make it a point to ask both partners if they want to ensure a legacy. If they do and we prepare for this, the healthy spouse is in a much better position to make this happen.
When providing practical solutions, do not forget that these are emotionally charged conversations and you should consider the relationships you are working to preserve.
Why Advice Matters
George brought his daughter to all the meetings. They were happy with Linda’s care and felt no need to create a trust for her. Sadly, George unexpectedly died shortly before Linda. Fortunately, he had taken our advice — re-deeding the house to himself and creating a new will that left his assets to his children. Linda died before running out of assets and going on Medicaid, so there was no need for her to take her spousal share according to the Medicaid rules.
Medicaid and long-term care are rarely fixed by simple solutions. Financial advisors must keep in mind that every state has different Medicaid rules. In addition, every client has different desires and needs. As I say in every article, and this is no exception, advisors must collaborate with other experts. This scenario is ripe for legal advice, financial advice and real estate advice. We need to collaborate to do good work and get the best outcomes for our clients.
Cathy Sikorski, Esq., is an elder attorney, speaker and author who unravels the complex financial and legal problems of caregiving and aging. She has been a caregiver for eight people. Cathy uses her experience to educate, entertain and elevate the conversation at work and in the corporate setting around money, retirement, aging and caregiving. Her third book, “12 Conversations: How to Talk to Almost Anyone about Long-Term Care Planning,” is available on Amazon.