Maintaining your independence

As we get older, it often seems that time accelerates. It seems the children were in diapers just yesterday. But, now they've left home and they have kids of their own. Where does the time go?

Aging is a normal part of life. The infant becomes a toddler. Later the teenager becomes an adult (thankfully). Unfortunately, as we age later in life, we are no longer as able-bodied as when we were teenagers. Gradually, we all get more aches and pains. But, what would happen if something serious were to occur? Let's take a look at Betty's situation.

Betty is 66 and has worked hard all her life. Betty and her husband, George, retired a few years ago. George died after only a year in retirement. Betty and George had a wonderful life together and raised two children, Alice and Mark. Not a day goes by that Betty does not miss George terribly. However, she has decided to live life fully and has had an active, fulfilling life. She travels and she spends a lot of time with friends and family — especially her adorable grandchildren.

She was visiting Alice and the grandchildren in the Northeast when she had difficulty walking and talking. She was having a stroke and was rushed to the hospital. After a week in the hospital, her condition stabilized and the doctors sent her to a nursing home for recuperation, which they expected to take three years.

Not only does Betty have a lot of hard work ahead of her, much of her life savings will be wiped out by the nursing home bills. Betty thought she had it covered with Medicare. But Medicare only covers the first 100 days of a nursing home stay. And there is a big daily co-payment after the first 20 days. After 100 days, she has to pay it all.

Betty wants to be close to Alice and the grandkids during her recuperation. Unfortunately, the average nursing home in that area costs well over $8,000 per month. The total stay will be over $280,000, even after Medicare pays its portion. Over a quarter of a million dollars! This will wipe out most of Betty's lifetime of savings and cause her to become financially dependent on her children. Instead of being able to help with her grandchildren's future, she'll be a financial burden on her children.

There must be a better way! There is. Betty could have planned ahead by gifting her money into a Medicaid Income Only Trust. The income of the trust would have been available to Betty, but the assets themselves would not be considered available to pay the nursing home expenses and would not have to be used up. As a result, Betty would have qualified for Medicaid.

While she needed the nursing home assistance, the income she received from the trust would go toward her “share of cost” for the nursing home. But, the principal of the trust would remain intact and could go to Betty's children or grandchildren at her death. Unfortunately, this strategy does not work if you wait until the last minute. Medicaid has a five-year look-back for gifting. Any gifts made within that five-year period are totaled and divided by the average monthly nursing home cost to determine the “penalty period.” Betty would be ineligible for Medicaid during the penalty period.

However, there is a second option. Although Betty won't be able to preserve all of her assets, she can still preserve about 60 percent of her children's inheritance, and more importantly, avoid being a financial burden on her children. Under the second option she can gift approximately 60 percent of her assets to an irrevocable trust for the future benefit of her children. Since it is within five years of her applying for Medicaid benefits, it will result in a penalty period or, in other words, a period of ineligibility; however, there is a plan to help her get through that.

The remaining 40 percent of her assets can be placed in a special Medicaid qualified annuity. Payments will be made to cover her cost of care from the money held in the annuity until the penalty period has expired. With proper planning, the money in the annuity will run out at the same time the penalty period expires. At that point, Betty will qualify for full Medicaid benefits.

Under either scenario, she will receive the exact same care! Avoid Betty's fate. Eat healthily and exercise, but also plan to protect your independence and your family's future. If you or a loved one is already faced with the need of assistance for day to day activities, run; don't walk, to a qualified estate planning and elder law attorney who can help you plan to preserve your financial independence.

Larry Deason is a Yuma attorney who is a member of the American Academy of Estate Planning Attorneys. He can be reached at 783-4466 or visit www.deasonlaw.com.