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Mary and Don Plan Ahead

Posted by Andrew Byers | Mar 07, 2012 | 0 Comments

In my last post, I wrote about what you do with the home of a nursing home resident in a crisis Medicaid plan.  A crisis Medicaid plan is planning that is done when an older person's move to a nursing home is imminent or after they have already moved to a nursing home.  While I, as an elder care attorney, can help save money in a crisis situation, since it is often better and less stressful to avoid a crisis, in this post I will discuss the options and benefits of planning ahead for long-term care.

Consider again the hypothetical case of  Mary and Don, a married couple who have lived in Troy Michigan since 1971.  Don is 71 and Mary is 68.  They have both been retired for several years and started traveling a few times each year to “see the world while they can,” when they're both still in good health.  While discussing their plans for their next trip with their daughter, Linda and her husband, Rick, in his usual blunt manner, asked if they should be spending so much money traveling at their age and then suggested that they add Rick's names to all of their bank accounts so he could manage them if something ever happened to Don and Mary.

Don was incensed at his son-in-law's suggestion, but Mary told him just to ignore him.  Rick has developed quite the reputation as a know-it-all in the family, but nobody took him seriously anymore.  However, Rick's comment did give Don and Mary food for thought.  They hadn't updated their Last Wills and Testaments since the early ‘70's, when their children were young.  Mary's sister had to get a guardianship and conservatorship for her husband when he needed nursing home care, and Mary remembered what a hassle that had been for her sister.  She and Don decided they better get their affairs in order before they took their next trip.

Don and Mary own their home in Troy and they have checking, savings and CD accounts totaling $225,000.  They both worked most of their adult lives, carefully watching their expenses and saved every month so they could enjoy a comfortable retirement.

Don and Mary called the attorney who drew up their Last Wills and Testaments many years ago.  He told them that he himself was in semi-retirement and was only handling the probate work for all of the Wills he had created through the years.  The attorney said since people are living longer and longer with modern medicine, they should consider meeting with an elder care attorney to review their estate plan.  Elder care attorneys are also known as elder law attorneys.

Don and Mary met with the elder law attorney.  Before the meeting, they thought they would just update their Wills and perhaps get powers of attorney.  At the meeting, they were surprised and pleased to learn that they could acutely plan now to avoid running out of money in the future should they need long term care.  With the help of their elder law attorney, they created a Medicaid Asset Protection Trust and placed their home and $75,000 of their savings in the trust.

A Medicaid Asset Protection Trust is an irrevocable, living trust that senior can create for asset protection and long-term care planning.  The assets placed into this type of trust are protected from long-term care and the Medicaid spend-down process.  While the term “irrevocable” is of concern to some people, the trust is actually quite flexible in that Mary and Don can change who the trustee is and who the ultimate beneficiaries of the trust are at any time.  The trustee can also change how the assets in the trust are invested at any time.

Mary and Don made their daughters the beneficiaries of the trust.  If needed, their daughters would be able to take a distribution from the trust rather than using their own money for Don and Mary's needs.  Even though they signed a deed transferring title to their home to the Medicaid Asset Protection Trust, they continued to reside there as usual and their real estate taxes did not increase.

The remaining $150,000 of their savings would be kept in a revocable living trust that Don and Mary created at the same time.  They would use their Social Security and pension income for their living and travel expenses and can also access the $150,000 in their living trust for any other needs they might have at any time.  Mary would apply for a long-term care insurance policy to provide further protection for them should her health fail (Don had previously applied, but had been denied to do his high cholesterol and a coronary artery angioplasty procedure he had a few years ago).  The $75,000 placed into the Medicaid Asset Protection Trust would not be counted against them after 5 years, should either of them need long-term care and to need qualify for Medicaid to pay for the monthly nursing home cost ($6,800 per month).

Sadly, Don had a heart attack several years later and died at age 79.  The family was sad about this, but were glad Don never had to move to an assisted living facility or nursing home.  Mary adjusted and started traveling again after a year, this time with a group of older friends.  She did well until her late ‘70's when she suffered a series of mini strokes and Linda and Jennifer started to assist her more and more, as detailed in my last post.  At age 81, Mary had to move to a nursing home.

Linda and Jennifer went back to see the elder law attorney for help.  He told them because Mary and Don had planned ahead by setting up the Medicaid Asset Protection Trust, the $75,000 that had been transferred to this trust was protected and did not have to be spent down to $2,000.  The home was also protected from Michigan's estate recovery law, and since it had been titled in the Medicaid Asset Protection Trust, Jennifer had the authority to sell the home as trustee.  She listed it for sale and the $95,000 sale proceeds were automatically protected and deposited into the bank account in the trust.  Under the Medicaid law, since the home had been titled in the trust, the cash proceeds received from its sale are also protected.  Jennifer and Linda did not have to worry about keeping the house and how they would pay for the real estate taxes and maintenance on the home, but then having the state pursue estate recovery against the house after Mary passed away.  Also, they did not have to worry about selling the house and then having all of the $95,000 that Mary would have received having to be spent down to $2,000.

As the $150,000 that had been placed in Don and Mary's living trust had been spent down to $65,000 in the years after Don's death, the elder law attorney advised Jennifer to purchase any items Mary needed and to establish a Medicaid-compliant funeral contract.  Jennifer used the remaining funds in the living trust to pay for Mary's care until they were spent down to $2,000 and then she qualified for Medicaid.  The elder law attorney did the application for them and interacted with the Department of Human Services, so everything went smoothly and the application was approved quickly.

Linda and Jennifer were relieved they would not have decide between carrying the house (but then having the state get it in estate recovery when Mary passed away) or having to sell the house but losing Mary's sale proceeds to Medicaid. The planning Don and Mary had done earlier protected what they had worked so hard for all their lives.  Linda and Jennifer did not have to worry about these financial issues and could instead focus on visiting Mary and making sure she got good care in the nursing home.  Even though Mary had dementia, they hoped she still got some peace of mind from the planning she and Don had completed with their elder law attorney.

This scenario illustrates the importance of seniors and their families planning early for the possibility of needing long-term care and Medicaid eligibility.  In addition to the financial benefits, there are also numerous non-financial benefits to such planning, including reduced stress on the family and peace of mind knowing that the older person's needs are taken care of regardless of the need for long-term care that will occur in the future.

About the Author

Andrew Byers

Andrew Byers' elder law practice focuses on the legal needs of older clients and their families, and works with a variety of legal tools and techniques to meet the goals and objectives of the older client. Under this holistic approach, I handle estate and longevity planning issues and counsel cli...


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Andrew Byers is an estate planning, elder law, and probate attorney in Troy, Michigan with 27 years of practical experience you can use to safeguard your savings and protect yourself. I strive to help my clients avoid and solve problems with clear, effective, and affordable legal services and counsel. I advise clients in Troy, Michigan and surrounding communities in Oakland County and the rest of Metro Detroit. Take the first step to obtaining peace of mind by contacting me using the online form or by calling (248) 469-4261.

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