Updated: Oct 4
Congratulations, dear friend! You have made it to the end having made wise investments, saved a sufficient amount for retirement, had plenty of long-term care insurance to pay for the necessary care at the end, lots of supplemental health insurance to cover the bills, constructed a combination of trusts to seamlessly transfer your vast wealth unto your offspring, and ended with zero debts! Bravo! Well done. Perfectly done, actually.
Wait, WHAT?! Is that not the case?? I must have dreamed it.
Frankly, if none of those things is true, you are in the vast majority. I am not one for statistics--who is creating those, anyway?--but I can tell you from observation that we "regular people" have none of those things. While most people (and this one is based in research) view themselves as upper- or middle-class, most people are wrong. We wait too long to save (or our employment and lifestyle does not allow for it), we wait to long to obtain LTC insurance or we never do, we fail to contribute to our IRA's and fail to take advantage of employer-matched 401(k)'s, we use our retirement funds to pay for medical and other emergencies, and we avoid estate planning at all. Sometimes we avoid it because it is scary; sometimes we avoid it because we have no "estate" to speak of.
As a result, one of the most common asset protection questions I get from potential clients in their sixties and seventies is, "How do I keep the state from taking my house?" Brothers and sisters, there is not a happy answer for most of you. I must answer your question with a question: Why do you want to keep the state from taking your house?
Why People Use Medicaid for LTC/SNC
Because we know the first paragraph did not apply to most of you, we have to talk about the realities of long term care. (Here, I use "long term care" but I recognize there are different levels of care. It does not matter to this post.) Some people do not need long term care! In fact, if you are proactively taking care of your health, are living in a one-level home that is equipped (or can be converted) to accommodate senior conditions, have a good social network or family who can help you at home, and utilize the local services available to seniors, you can greatly improve your chances of staying in your home for as long as possible. Perhaps you have children or grandchildren nearby who are able to provide assistance, or with whom you can move in--or who can move in with you--when things get tough. Great! You might get lucky and not land in a hospital or long term care situation. I pray for this for you.
But frankly, s&!% happens. People get sick, people experience age-related physical changes, people become mentally incapable of managing their affairs. We are all afraid of these things because we have all seen it happen. Medicare will assist you with many of your healthcare needs, but Medicare will stop paying for long-term or skilled nursing care after just a few months. At that point, if you have sufficient savings or insurance, great! Now we dip into those funds. But if you do not, and if you continue to need care, you will need the assistance of your state's Medicaid program to pick up the slack.
The unpleasant reality is, Medicaid is not "free." Unlike Medicare--to which we all contribute as workers and then take our needed coverage out as seniors--it is not funded by "us" as workers, but by "us" as taxpayers through a legislative budget allocation. A large portion comes from federal taxes, and a smaller portion comes from state taxes. But whatever money goes in, it is not enough to keep up with the rising costs of healthcare. For that reason, when seniors use Medicaid to cover the high cost of long-term care, the State needs to recapture some of its money from those who have assets to cover it. (Editorial note: the State also "recaptures" from parents who fail to pay child support causing their children to need state assistance, if it makes you feel better.)
The State will not deny you coverage unless you have assets you could use first. If you have a pile of cash, they will make you spend down the cash. And yes, if you own your home, they will make you sell (or at least prove that you have listed with intent to sell) your home. So, when I ask you why you want to keep the State from taking your home, I am looking for one of the answers below. Your answer helps determine the advice I might give you.
"I don't like the idea of losing my home."
Friend, no one likes this idea. Trust me on that one. For some, it is the thought of having no anchor--nowhere to return to. That makes us also grasp the reality that we are at the end. What's that line in that country song? "Everybody want to go to heaven, but nobody want to go now." Being rootless, without a home to picture and pull us toward, makes us feel we are already on the journey to death. But, we are. All of us. Every day. No death is good, nursing home deaths are awful, and the feeling of being "homeless" sucks hard. Is that a reason to hold on to a property to which you won't return?
Let's say you do heal from whatever brought you into residential care in the first place. Will you really return to that classic Victorian with a two-car detached garage and a healthy lawn, definitely not in walking distance to where you need to go each day? And while you were in residential care--or in the days leading up to it--what do you think happened to the value and condition of that home? I can tell you after being advised by two different Realtor friends, it did not go up, and it did not improve.
So why are we trying to shield this property from creditors--the creditors being the State of Kansas by way of Medicaid? When you hang on for emotional reasons, you are asking the taxpayers to pay for your care. Please know when I say this that I am not here to judge you: If you have landed in a spot financially where this was the very last asset you had, then why are we looking for clever trickery to shield it from the State? Let it go. Let it go. Your roots were never in that house. You had the power inside you all along--and by the way, those roots cannot hold you here on earth. Let's look at some other ideas as shown below.
"The property has been in my family for generations and I don't want to be the one to lose it."
Now this one, I can work with. So you have a family farmstead, or you live in your own parents' or grandparents' home, or you have a large family who gather here at every holiday and EVERYONE feels rooted to this place.
I want you to consider something: Instead of asking me to "add Johnny to the deed" or putting the house in a revocable trust (which isn't going to work, by the way, if you need Medicaid to pay for long term care), or some "trick" to keep it from being recaptured, how about involving the next generation in the plan in a way that works for you and them, both?
What most people do in this scenario is hang on to the place too long. They fail to figure out who actually wants the property, or perhaps they merely execute a transfer-on-death deed and hope for the best. Or, they screw up and simply add Johnny to the deed (or they retain a life estate on the house) but fail to get adequate consideration for the property. ("Consideration" is essentially the money the other person pays you to secure a contract.) Honey, the State can smell these tricks a mile away. They don't work without other essential steps, and more importantly to you and your care, they do not benefit you AT ALL.
You need money for your care. Johnny wants to have the house after you are gone. Great. Why not have Johnny pony up and buy the house? Or how about opening up an option to the entire family? The family reunion just got a lot more interesting when you announced that you would be taking bids: whomever wants the house can buy it, so long as you retain the life estate. Perhaps the cousins will go in on it together and use it as their family gathering spot after you pass. Perhaps they will assist you with upkeep (even though they are under no obligation to do so) to protect their investment. Perhaps the whole family wants a trust or a business entity to secure it! But the key is, land in a spot where you no longer own the house. The State cannot take what you sold to someone else fair and square. (If you deeded it to Johnny without consideration, they sure as heck might try to recapture it from Johnny.)
And because you are a genius--albeit not a rich one--you took that money from the sale of your home and you purchased an annuity so you have some regular monthly income. And you knew you might need Medicaid in the future, so you also made sure this could convert to a Medicaid-compliant annuity. (Heck, I have an insurance man right next door who can help you set this up.) I am so proud of you, friend. I don't want you to lose this family property, either!
"This is all I have to leave to my kids. I can't leave them with no inheritance!"
Spoiler alert: You can. You totally, totally can. And what's more important--and I believe I speak for the entirety of Generation X here--we don't expect you to. We are not blind. We have watched you give and give, taking care of us while we are all alive. We have watched you sacrifice throughout our lives so that you have no savings and no real plan. We are fully aware that the house is your only real asset. And I promise you, we do not expect any inheritance.
We do hope that you had the foresight to hang on to as much life insurance as you could, and that you purchased a funeral insurance policy to pay for the event we most definitely want to hold in your honor. (Heck, I have a funeral director pal who can set this up for you right now.) We also hope that you didn't fight us when we pointed out that it's time to downsize or to move in to the granny-pod we had built for you in our backyard or to sell your collection of Precious Moments figurines on Ebay. And we hope that you didn't keep your finances a secret, thinking it was "too private" to share with us, your likely executors and powers of attorney and (we hope it didn't come to this) guardians or conservators.
We absolutely hope that you did take care to have a trust, or at least a Last Will with provisions that allowed us to take care of your personal property outside of probate, and that you listened when your lawyer advised you to add TOD's to your cars (and yes, your house, just in case), that you kept your documents and beneficiary designations up to date, and that you told ALL the siblings the plan, and not just your favorites. And we hope you paid your bills but also kept a record of your debts, and that you gave us access (either through joint ownership or powers of attorney) to your finances so we could help you manage it and take over when necessary.
And yes, we also hope that you died peacefully in your sleep before ever needing nursing care, surrounded by friends and family in the home they will now own. But because you talked with us all, we know that we are going to distribute your assets according to your wishes, go to the Register of Deeds with our affidavit, and sell the house we now own.
The Perfect Plan
. . . does not exist. But we can get you to "good." If you have planned very, very well, then you do not need to worry about the State taking your home. And if you have not planned (financially) very well, or if you are merely mortal and not-quite-actually-middle-class like the rest of us, you still do not need to worry about the State taking your home. They might do it, but you don't need to worry about it. What you need to focus on, instead, is planning for a healthy transition with no real surprises. Good plan, contingency plan, family plan. Plan, plan, plan. But a "trick" is not a "plan." Let the actually-upper-class crowd do its thing. You are more likely headed for the eye of a needle, so don't let pulling a fast one be among your final acts.
Call me, and we will try to get you to good. I cannot promise you heaven, but I will try not to help send you to the other place.