Elder Law Center

One Essex Street

Saugus, Massachusetts 01906

Telephone 781.233.4444   Fax 781.231.2222

Saugus Advertiser December 4, 2003

 PROTECTING THE HOME FROM NURSING HOME COSTS

 Before I get into this week’s subject, I would like to report that your Governor has vetoed section 110 of the supplemental budget that postponed expanded estate recovery until July 1, 2004. The expanded estate recovery law became effective on July 1, 2003 and allows the Commonwealth to recover against many assets that had been previously protected, if you or your spouse needed nursing home care. Our public policy committee of the National Academy of Elder Law Attorneys is optimistic that this veto can be overridden in January if the constituents contact their legislators and urge them to support the override.

 Surprisingly, Romney also vetoed section 30 and 31 of the supplemental budget which was corrective legislation to remove life insurance proceeds from the expanded estate recovery.  The Division of Medical Assistance had previously said that they were not interested in pursuing life insurance. Veto of this section means that before any life insurance company can pay death proceeds from life insurance they must first contact the Division of Medical Assistance (DMA) to be sure that the individual was not receiving MassHealth (Medicaid) benefits. Any amounts owing to the Commonwealth would have to be paid first before making distributions to the beneficiaries of the life insurance.

 Now to this week’s information: Many people are interested in how they can make sure their children get their home after they are gone. They would also like to avoid probate, let their children be able to sell the home tax-free, and protect it from nursing home expenses. Under Governor Romney’s reign, this has become much more difficult.

 Generally, when you give an asset away you are disqualified from MassHealth benefits for a certain period of time. However, there are often circumstances that allow elders to transfer their home with no penalty. By that I mean that the house can be transferred to a family member without any lien by MassHealth.  When the situation arises, that the home can be transferred without penalty, we can then shift our attention to other assets.

  DMA uses the terms “Disqualifying Transfers of Resources” and “Permissible Transfers”. A permissible transfer is one that allows the transfer with no disqualification period from MassHealth. Under the Code of Mass Regulations, sec 520.019(D)(6), the following are permissible transfers of the home:

 ·        Transfer to the spouse – Under the regulations, transferring the home to the spouse is never a disqualifying transfer. In fact,  if one spouse is receiving MassHealth it is required that all assets, except for less than $2,000, be transferred to the spouse at home within 90 days after the date of approval for MassHealth.

·        Transfer to the nursing home resident’s child who is under age 21, or who is blind or permanently and totally disabled.

·        Transfer to the nursing home resident’s sibling who owns a portion of the home and was living there for at least one year prior to nursing home placement. This usually occurs when siblings or cousins are living together.

·        Transfer to the nursing home resident’s child who was living in the home for at least two years immediately prior to admission to the nursing home AND provided care to the nursing home resident that permitted him or her to live at home rather than in a nursing facility. This is known as the caregiver-child exception.

 The two most common permissible transfers are the transfers to the spouse and to the caregiver child. As mentioned above, we always transfer all assets, except for less than $2,000, to the spouse at home. It is a requirement. Transfers to the caregiver child are allowed as an incentive to reduce overall medical expenses relating to nursing home costs.  By keeping the elder at home for as long as possible, the state saves money, the elder is happier, and the child gets compensated for his or her time and effort. One problem area is that there is often more than one child and the parents wishes were that their children be able to share in any inheritance. Under the caregiver child exception, only that child may receive the property. In many cases the caregiver child then retransfered the property to herself and her siblings to achieve the elder’s wishes.  Personally, I feel that if a caregiver child wants to give his or her property away, that’s their business. But your Governor is not happy with that. Under his “Waiver” request that was filed on August 28, 2003 he wants to be able to look at successive transfers of property so that when the caregiver child transfers her interest to her brothers and sisters, Romney will say “Gotcha!” and take the house.

 So, if you do not fall into any of the permissible transfer rules, what can you do? If you have time to plan, meaning that the owner(s) of the home does not require imminent nursing home placement, there are some options.

 ·        You could transfer the home to your children outright. Most elder law attorneys don’t care for this because the elder is our client and their security is a major concern for us. I think all of us have read in the newspaper about the child or grandchild who had received the elder’s house, as a gift, and later sold the house and had the elder evicted. We are also concerned about the fact that if the house is transferred to the child and the child gets married, sued, divorced or has to claim bankruptcy, the elder’s right to stay in the house could be compromised.

 ·        Up until July 1, 2003 we would routinely transfer the home to the children and have the parent retain the right to live in the house for the rest of their lives. This is known as a life estate. The benefits were that no matter what happened to the children, the right to occupy the house by the parents could not be interfered with.  In addition, it avoided probate, the children got a step-up in basis (allowing them to sell tax free after the parents’ death) and it was protected from estate recovery by the DMA if either or both parents required nursing home care. As of July 1, 2003 the expanded estate recovery took effect.  That allows the DMA to lien the property to the extent of the value of the life estate. They would use actuarial tables to determine the value of the property on the day before the elder died to calculate how much of the property could be liened. Due to the expanded estate recovery the use of life estates has been drastically reduced.

 ·        Another option, which has been widely used, is the use of irrevocable trusts to hold real estate. This has all of the benefits of a life estate, i.e., avoids probate, step-up in basis and protected from estate recovery. It also allows the use of the Internal Revenue Code sec 121 capital gain exclusion. This allows a $250,000 gain exclusion for a taxpayer ($500,000 exclusion for married couples). There are some questions that remain concerning the affect of the expanded estate recovery, if any, on the use of these trusts.

 ·        Long Term Care Insurance – Purchasing long term care insurance makes your house a non-countable asset.  Yes, I know that the premiums are high but you have to take into consideration the value of your house in considering the cost of the insurance. Long-term care insurance also opens up some other planning opportunities to protect other assets. At present the only downside, other than the premiums, is the regulation that says that you must have a minimum of 2 years of nursing home coverage in order to have your home protected. So, if you have a 3-year policy and use up home care benefits of 1 year and 1 day, that means you have less than 2 years of nursing home coverage, which means no protection for the house. Our public policy committee is working to correct this.

 Next week I’ll be continuing this topic with a closer look at transferring the home, a few examples and an analysis of what affect the “Waiver” could have.

 This article gives general information and not specific advice on individual matters. Persons wanting individualized advice on matters discussed should contact an advisor experienced in those matters. To the extent this article provides information on legal matters, it is based on law in effect in Massachusetts on the date of posting (laws in effect in other states are often quite different).

 Ronald H. Surabian is a CPA and attorney who works at the Elder Law Center in Saugus, Ma. He also holds a masters in accounting and a masters in tax law. He currently serves on the board of directors of the Massachusetts Chapter of the National Academy of Elder Law Attorneys.

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