Asset Protection in the Long-Term Care Context

April 14, 2016

By: Stephen R. Elville, Esq. – Elville and Associates, P.C., steve@elvilleassociates.com443-393-7696, 

Asset protection takes different forms depending on the situation.  During lifetime, with the exception of domestic asset protection jurisdictions such as Delaware, Nevada, Alaska, South Dakota, Wyoming, and approximately nine (9) others, asset protection is difficult to achieve, except in certain routine but little understood assets owned by most people, such as husband and wife property, IRAs, qualified plans, life insurance, and annuities.  Conversely, providing asset protection at death is relatively easy to achieve, through the use of spendthrift trusts for spouses, children, and other beneficiaries.  Somewhere in between lifetime asset protection and the asset protection provided to loved ones at our deaths is the world of long-term care asset preservation.

Asset protection in the long-term care context is difficult to understand, mainly because the subject has traditionally been shrouded in mystery due to a lack of available information and few educational resources.  In essence, this subject can be broken down into three (3) easily understood subcategories:  (1) pre-crisis planning; (2) mid-crisis planning; and (3) crisis planning.  Pre-crisis planning usually involves a desire on the part of the individual or couple to preserve assets for the benefit of children and grandchildren, and includes a strong motivation to transfer or divest assets to children for purposes of starting the “five year look-forward period” for Medicaid (Medical Assistance in Maryland).  In this type of planning as in all planning, the client’s goal to preserve assets from Medicaid spend down is the driving force.  Income tax, control, and other fact-driven issues are key considerations.  As in all planning, legal counseling, not just legal-technical planning, is essential.  Pre-crisis planning, while goal driven, is best achieved where the individual or couple has sufficient income or other assets; or, alternatively, long-term care insurance, to sustain them in the event of a crisis during the five-year look-forward period, and ensure that the planning works as intended.

Mid-crisis planning presents in spousal situations where one spouse has learned that they have the beginnings of an illness, or is becoming impaired.  In such circumstances, and where appropriate, certain non-invasive asset protection measures can be taken to achieve preservation of funds should certain events unfold in the interim period prior to possible institutionalization of the ill spouse.

Crisis planning means that an institutionalization (usually placement in a skilled nursing facility) has occurred or is getting ready to occur.  In such situations involving spouses, state and federal law provide for the protection of the community (non-institutionalized) spouse (protections for income and assets).  In non-spousal situations, fewer protections are available.  However, in general, under the current laws approximately one-half (1/2) of the assets of an unmarried individual can be preserved while still attaining his or her Medicaid eligibility.

In this brief blog article, I have attempted to outline and simplify the fundamentals of asset preservation as applicable to most seniors.  The advice and counsel of a competent elder law attorney is absolutely essential, along with the assistance of your CPA and financial advisor as part of the planning team.  And in any event, comprehensive estate planning documents, especially updated financial powers of attorney and advance medical directives, are indispensable and essential tools without which planning opportunities may be limited, or even lost.  As in all estate and elder law planning, thorough plan implementation, along with annual or bi-annual maintenance and updating, is necessary for plans that work.