Gifting Assets

Today's Q&A on ElderCareMatters.com is about whether elders should gift to their adult children

Question: I am 75 years old and have a modest amount of savings, a home without a mortgage and a small retirement pension plus my monthly social security check. I am in relatively good health, and quite candidly hope to live for another 10-15 years. I have one child who is in her 50s but can’t seem to keep a job or a marriage. She is again without a job and is now divorced for the 3rd time. My question is whether I should start gifting her my money and perhaps gift her my home as well in anticipation of my needing nursing home care in the future. What would you recommend I do from a financial planning perspective, factoring in the fact that elder care cost so much in California?”

Answer: It is great to hear that you are in good health, but your finances may not be as healthy as you are.

The good news is that your estate is under the current $5 million limit, so there are no estate tax issues.

The bad news is that, based on your information, you have very limited liquidity, and liquidity is the secret of financial survival. In my opinion, you need to have $1 million in liquidity, that is cash, stocks, or a pension plan, so that you are financially secure during retirement.

Also, there is a real concern about Medicare. Will it be around in 10 years and will it pay the lion's share of your medical expenses in the future, and if not, will you be able to afford these medical expenses?

Another concern that you should have is that California is bankrupt. What affect will this have on its ability to provide California residents with Medi-Cal benefits?

If you have not done so already, I would suggest that you do the following:

Meet with a financial planner to develop a financial "road map".
Meet with an attorney to have the following legal documents prepared: Power of Attorney for Health, Power of Attorney for Finances, and a Living Trust (which can help your estate avoid the high cost of Probate)

Finally, regarding your daughter. I would suggest that at 50 years of age that she assume responsibility for herself–that she find a job, and perhaps start thinking about taking care of you and your elder care needs.

Hope this helps.

Orlando J. Antonini, CPA/PFS, CFP, QFP, RIA, NCG
Antonini CPAs LLP
San Francisco, California
Member of the national ElderCare Matters Alliance, California chapter

Question of the Day on ElderCareMatters.com: "I am an Elder Care Professional with 15 years experience in helping families with their elder care matters. Should I be listed on ElderCareMatters.com?"

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ElderCareMatters.com

Question of the Day on ElderCareMatters.com: "Should I transfer my home to my kids to protect it if I should need nursing home care?"

Answer: The correct answer is "It depends". It depends on your unique family, health, and financial situation. Tax consequences also have to be considered. In the event you need long-term care, there is a five year look-back period that applies to gifts (transfers of assets without consideration). Thus, if you are faced with a chronic or catastrophic illness within five years after you transfer the home to your children; such transfer may impact your ability to obtain Medicaid (Title 19) benefits. This is a very complicated area of the law and requires careful consideration.

If it makes sense to transfer the home to your children, there are several ways to structure the transfer. The first is an outright gift to your children. This is generally not advisable for tax reasons and asset protection purposes. The second is by completing the transfer but retaining a life estate. While generally superior to an outright gift, this is also not without problems. However, the retained life estate does give you some legal control over the property and also preserves some tax benefits associated with inherited property versus gifted property. The third is a transfer of your home to an irrevocable trust. This is usually the preferred method of protecting the home as it balances tax benefits with asset protection issues and also protects the home from your children's creditors or in the event they should predecease you.

As you can see, the transfer of your home is something that requires careful consideration and sound legal counsel.

Paul T. Czepiga, Esq., CELA
Czepiga Daly Dillman, LLC
Newington, CT 06111
860-597-7995
www.CtSeniorLaw.com
Member of the national ElderCare Matters Alliance, Connecticut chapter

Question of the Day on ElderCareMatters.com: “My 93 year old grandfather from North Carolina who is in good health moved in with my family 9 months ago. My (absentee) brother and I are the only heirs. My husband and I are purchasing a new home to increase space for our new family. My grandfather wants to give us $200k toward the house in order to spend down a portion of his cash savings. Should we include him on the deed and homestead him in the new state of Florida or simply receive the money as a "gift"? My husband and I are financially independent and while we appreciate the gift, we do not need the gift to purchase the new home.”

Answer: There is a 5 year look back period for Medicaid. Any asset transfers, including gifts, made within this 5 year look back window will trigger a penalty period of ineligibility to receive Medicaid benefits. There are ways to avoid triggering these penalties but an outright gift is not one of the ways.

As an example of the problem with making an outright gift, if your grandfather gifts to you $200,000 today and in 3 years requires skilled care, the gift of $200,000 will render him ineligible for Medicaid benefits for a significant period. During the period of ineligibility he, or you, will have to pay for any nursing home care.

In Massachusetts, the homestead protection will not keep your grandfather’s $200,000 from the reach of nursing homes, but a primary residence is often an exempt asset for Medicaid (Mass Health). In Massachusetts however, the nursing home or skilled care facility will be able to put a lien on your home if you use a portion of his $200,000 gift to purchase the home and put his name on the deed.

However, since you are buying your home in Florida, it may be to your grandfather’s advantage to have him contribute to the new house and count it as his “homestead”. If he requires nursing home care in Florida, it is my understanding that his $200,000 would be exempt, but you should check with an attorney in Florida.

If your grandfather is truly seeking to protect assets from the reach of nursing homes, setting up an asset protection trust is often the recommended option. Creating an irrevocable trust starts the 5 year look back clock as soon as the trust is funded. Once the property is in the trust, your grandfather can make any type of gift or transfer he so chooses without “resetting” the 5 year look back period. In addition the irrevocable trust allows your grandfather to protect ALL of his assets while allowing access to income. As another added benefit, your grandfather’s life savings will be left to his loved ones without the need for probate.

To find competent, caring elder care professionals across America who are located near You and can help you with your elder care matters, go to: www.ElderCareMatters.com - A FREE online resource to find elder care experts plus elder care information & answers to your elder care questions.

Dennis B. Sullivan, Esq., LLM, CPA
Estate Planning & Asset Protection Law Center of Dennis Sullivan & Assoc.
Wellesley, Massachusetts 02482
781-237-2815
Member of the national ElderCare Matters Alliance, Massachusetts chapter

Question of the Day on ElderCareMatters.com: "We recently moved my 86 year old unmarried aunt from Rhode Island to Michigan to be near me, her only niece and the person who has her financial and medical POA. To thank me for taking care of all the details of the move, she wants to give me her 2005 Hyundai Elantra. We have set her up in Assisted Living and she has enough money to pay for 5 years of that care. However, if she becomes more ill during that time and must be moved to a nursing home, she will go through her funds more quickly and may need to go on Medicaid before the 5 years are up. Would Medicaid consider the transfer of the car to me in 2011 to be a "gift" that would be identified during the 5 year look back? Could she legally avoid that potential problem if she gave me the car as payment for "services rendered"? What type of paperwork would we need document the transaction. Or could she possibly sell it to me for a nominal fee?"

Answer: I would NOT risk losing Medicaid over this car. I suggest buying the car for a nominal price.

To locate competent elder care professionals who are located near You and can help you with this type of elder care matter, go to: www.ElderCareMatters.com - A FREE online source to find elder care experts plus information & answers about a wide range of elder care matters.

John E. Settle, Jr., Esq.
John E. Settle, Jr., Attorney at Law
Bossier City, Louisiana 71111
318-742-5513
Member of the ElderCare Matters Alliance, Louisiana chapter

Question of the Day on ElderCareMatters.com: "My parents have a net worth of $1.5 Million. Is it unrealistic for them to gift most of their assets to their children if they did not buy long term care insurance? They will keep an ample amount just to live on."

Answer: Whether giving away assets is a good strategy for your parents will depend on a number of factors including their age, health, how they feel about giving up control over their assets, and how they feel about having less flexibility regarding where care can be provided.

Oftentimes assets are given directly to a child with the thought that the child will use the funds for the parents later when the need arises. But a true and complete gift does not come with strings, once given to the child there is no legal obligation on the part of the child to help mom and dad later. What if the child does have good intentions to help mom and dad, but divorces, is sued, is influenced by a spouse, or is just not good with money? Mom and dad’s hard earned assets may be taken away forever.

Giving assets away can be tricky. If after giving assets away mom or dad needs care prematurely i.e., within 5 years of the gift, a penalty period or period of ineligibility for Medicaid will result. This period will not begin to run until mom or dad applies for Medicaid.

You don’t indicate your parents age or health status, but purchasing a long-term care insurance policy to cover a period of 5 years could be a good investment. There are policies available that include a return of premium feature, meaning that if the policy is not used the premiums are given back. There are also life insurance policies that have long-term care riders. With this type of policy if long-term care is needed the policy is tapped and if not it continues as a regular life policy paying a benefit on death.

It will be worthwhile to consult with an elder care attorney to learn about all the options for long-term care planning available. The guidance of a professional will save the family time, money and stress in the long run.

To locate experts in your state who can help you with these elder care matters, go to: www.ElderCareMatters.com - America's online source for elder care experts plus information & answers about a wide range of elder care matters.

Heather R. Chubb, Life Transitions Lawyer
The Chubb Law Firm
Gold River, California 95670
916-635-6800
Member of the national ElderCare Matters Alliance, California chapter

Question of the Day on ElderCareMatters.com: "My elderly but healthy parents own some collectables valued at approximately $100,000. They also jointly own their house with a value of $135,000. They have about $150,000 in cash and retirement accounts worth $125,000. What planning can be done now so that these assets may be retained by the family if my parents need to go into a nursing home in the future?"

Answer: First, let me say that it is nice to see a family discussing planning in advance of the need for long-term skilled nursing care. By planning now a greater variety of options are available to meet your goals. I am going to presume that you are concerned about preserving assets if your parents need to rely on Medicaid to pay the nursing home bills. The Medicaid rules vary somewhat for each state, but as a general principal to get the most preservation you will need to plan at least 5 years in advance of the need for care.

Any planning that is done must consider not only the rules for Medicaid eligibility but also the recovery (or payback) rules. For example, the home is an exempt asset for eligibility purposes and it could remain in your parents’ name, but upon the death of the remaining spouse the state will want to be paid back for the care it provided to the ill spouse, which could result in the forced sale of the home.

Asset preservation will fall into 2 categories – converting assets from non-exempt to exempt and getting assets out of your parents’ names, i.e., giving them away. Some examples of conversions include using funds to make repairs or improvements to the home, buying mom and dad a new car, purchasing a Medicaid compliant annuity or entering into a personal care contract.

Because giving assets away means a loss of control over the asset, your parents need to be part of the plan. If they are “young” healthy elderly they may not be ready to give up control. Flexibility in the plan will be important as will giving assets away in the right way.

Oftentimes assets are given directly to a child with the thought that the child will use the funds for the parents later when the need arises. But what if the child divorces, is sued or is just not good with money? Mom and dad’s hard earned assets may be taken away forever. Included in the definition of “giving away” is adding a child’s name to the house deed or bank accounts. Therefore giving assets away in the right way is critical. Special irrevocable trusts work nicely to provide the protections your parents need.

A final word of warning when giving assets away, if mom or dad needs care prematurely i.e., within 5 years of the gift, a penalty period or period of ineligibility for Medicaid will result. This period will not begin to run until mom or dad applies for Medicaid.