Elder Law Planning Under the New Rules
6/06
Under the Deficit Reduction Act of 2005 [“DRA 05”], which was signed into law on February 8, 2006, drastic changes were made to close the loopholes that were available to seniors which allowed seniors to keep their assets with their families and still qualify for Medicaid to pay for nursing home care. Now, any gifts or transfers made by seniors, will make them ineligible for Medicaid for certain periods of time.
Because our current health care system is a “luck of the draw” type system where some illnesses and injuries are covered by insurance and others, such as Alzheimer’s Disease, are not, DRA 05 truly amounts to a tax on the middle class. The current generation of seniors were always taught to live within their means and save for retirement. It is a generation that is virtually debt free. However, for those who are unlucky and end up in a nursing home, a better theory may have been to spend it while you have it. Under the new laws, many of today’s seniors will lose their life savings due to the high costs of nursing home care.
The best way to combat the high cost of nursing home care, which now costs approximately $120,000.00 a year, and keep your assets with your family is to obtain a Long Term Care Insurance policy. This type of insurance is never going to be described as “affordable.” However, when you put it into context, and consider the maximum amount of insurance premiums you would have to pay through the rest of your life, it will still be much less than what you would have to pay for a year or two in a nursing home.
Another legal planning strategy which may be used by seniors to transfer assets to their children and grandchildren is the “Personal Care Service Contract” or “Caregiver Agreement.” As anyone who has ever cared for an elderly parent or relative knows, extending such care is tantamount to a full-time job. Since gifting to your children is no longer an option, the idea is to pay your children for tasks they were traditionally doing out of love and affection.
Caring for an elderly relative may involve cooking, cleaning, paying bills, doing yard work, shopping, driving to doctor appointments, monitoring of medications, financial guidance, filling of prescriptions, providing companionship and providing housing. Traditionally, these tasks were performed out of love and affection and no thought was ever considered about charging a parent or elderly relative for performing these services. When adult children do not reside near their elderly parents, in many cases a Geriatric Care Manager is hired to perform and/or supervise the performance of these tasks.
With a Personal Care Service Contract, the senior and the caretaker can have a written agreement where the caretaker would be fairly compensated for performing these tasks. Adult children would be performing the tasks they would be doing anyway and the senior would be giving their children funds that they would also have given them anyway. What this Agreement does is avoid the penalties and issues associated with DRA 05 and the Medicaid transfer rules because the transfer of money, if reasonable, will not be considered a gift. It is important to note that any compensation received by the adult children will be deemed taxable income. The end result is that your money stays in your family and your children can still receive an inheritance because all will not be lost to the high cost of nursing home care. There are many legal ramifications pertaining to Personal Care Service Contracts and one should not be entered into without consulting an experienced Elder Law attorney.