As New Jersey elder care lawyers, we often meet with families that include a loved one who needs long term care, such as in a nursing home. Nursing home are is incredibly expensive, typically ranging between $6,000 per month in lower-cost parts of the country, to as much as $15,000 per month in northern New Jersey where we are.
Usually, families we see want to protect their assets against those enormous long term care costs. They want to preserve their life savings for their spouse, so she won’t end up impoverished, or for their kids, to pay for their grandkids’ education or the like, instead of spending their life savings on nursing home costs.
The best way to preserve assets is to qualify for Medicaid, a government program that pays for nursing home care. Often, if you meet with an elder law attorney, the attorney can come up with a custom plan to preserve your family’s assets while you qualify for Medicaid, and save those assets within your family rather than losing them all to long term care costs.
However, there is unfortunately a lot of misinformation floating around on this subject. Sometimes we see people who have taken steps before we met with them, that have set them back in terms of asset protection and qualifying for Medicaid. One of the most common is people who have made large gifts without considering the consequences.
For example, some people read on the internet that they should just put their house in their kids’ name, and it will be protected against nursing home costs. However, there are a lot of reasons why that is often a very bad idea.
First, by putting your house in your kids’ name, you no longer own your house. Your kids own it, and they can do whatever they want with it. They can kick you out, sell it and pocket the money. Even if you trust your kids to never do that, they may not have a choice. If your child goes through a nasty divorce, the house could be awarded to their ex-spouse, or the court might order the house sold to raise funds for the divorce. If your child gets into a car accident, a plaintiff could sue your child and a court might order the seizure of your former house, which your child now owns. There are risks to having someone else own your home.
Second, Medicaid penalizes gifts. If you make gifts within five years before you apply for Medicaid, you have to disclose those gifts to the Medicaid agency during the application process. The agency also reviews your financial records (which you must submit) to verify whether gifts were made. If you have made gifts within the five years before you apply, Medicaid imposes a “penalty period” – a period of time during which Medicaid will not pay for your nursing home. Currently in New Jersey, you lose roughly one month of Medicaid for every $12,000 you give away. (The numbers differ in other states.) So if you give away a house worth $280,000, you would lose Medicaid for two years.
The kicker is, this penalty period doesn’t begin until you are otherwise eligible for Medicaid. That involves spending your assets down to under $2,000 (with some nuances that I can’t cover here). So imagine someone gives away her house, and then two years later needs nursing home care. She spends down her funds to below $2,000, then applies for Medicaid. The Medicaid agency tells her that because she gave away her house, Medicaid will not pay for her care for another two years. She has a quickly rising nursing home bill (thousands of dollars per month), and no way to pay it, with no money and no Medicaid. In this scenario, depending on state rules, likely no nursing home would take her, and if she’s already in a nursing home, the home might try to remove her, or come after other family members for unpaid bills.
There are a lot of potential pitfalls to trying to do Medicaid planning yourself without advice from counsel. In some cases, gifts make sense, but they should only be made with guidance from an experienced elder law attorney. Trying to do it yourself is the legal / financial equivalent to trying to do heart surgery on yourself. Which we recommend against.