How to Protect Mom’s House and Cottage from Medicaid Spend Down [Case Study]

Many of our clients have their children assist them with putting together a plan to protect against long-term care costs.  Here is an example situation, where we are able to put together a plan to ensure that mom has the best quality of care possible and that she doesn’t go broke trying to pay for long-term care.

Protecting Mom Against The Devastating Cost of Long-term Care

Daughter attends one of our free LifeCare Planning Workshops, this one was at our Brighton headquarters.  She schedules a Vision Meeting right after the workshop to sit down and talk about her mom.

Mom is still living at home (in Brighton), but is aging and starting to have problems getting around.  There is a good chance that she may need to move into independent or assisted living in the next couple years.  Mom has a home ($250k), a cottage up north ($300k), savings ($20k), and IRA money ($20k).  She doesn’t want to be a burden on her children, wants to avoid probate, and wants to make sure she doesn’t lose all her money to long-term care costs.

How to Pay for Long-term Care in Michigan

There are six ways to pay for long-term care in Michigan.  First, we can private pay.  Second, our kids pay for our care, either financially or in terms of their time.  Third is long-term care insurance.  Fourth would be Medicare, which only pays for rehab or hospice.  Then, fifth, is the VA Benefit, which can help pay for home care or assisted living.  Last, we have Medicaid which helps pay for nursing home care…which can easily run $8,000-$12,000 per month!

How to Protect Mom’s Assets From Nursing Home Spend Down in Michigan

What we suggested for the family is a plan that will protect both Mom’s home as well as her cottage up north from nursing home or medicaid spend down…in the end protecting $450,000!  The alternative to the plan recommended would be that if Mom did need long-term care in a nursing home, she’d have to spend down to the $2,000 Medicaid asset limit in Michigan.

What we did to protect Mom’s assets was to set up an asset protection trust that would start the 5 Year Clock for Medicaid.  Medicaid in Michigan has a five year look back period, meaning DHHS looks back five years to see if Mom moved any money around, and if she has they will penalize her.  What the asset protection trust does is move the assets out of Mom’s name, into a trust, that she can control, receive income from, change beneficiaries, and empty with the assistance of another family member at any time.  In other words, Mom sets up a piggy bank, moves the assets into the piggy bank…then everything is protected!

So, Mom sets up the Asset Protection Trust, then we deed both properties directly to the asset protection trust.  We do not use Lady Bird Deeds because, in Michigan, while they currently do avoid probate and estate recovery, enhanced estate recovery is coming down the pike and all the attorneys out there doing Lady Bird Deeds for clients are selling their clients up a river whenever enhanced estate recovery passes.  Enhanced estate recovery will put the “Medicaid Mortgage” on the home, not upon death like it is now, but when Mom enters the nursing home and applies for Medicaid.

Revocable Living Trust versus Asset Protection Trust

In this situation, Mom only had a will based estate plan that would not avoid probate, let alone offer any asset protection against long-term care costs.  But many of my clients have a revocable trust and a common question is “doesn’t my revocable trust protect against long-term care costs?” Unfortunately, the answer is no.  A revocable living trust offers no real benefits while you are alive.  It only can protect against probate (if funded properly) or protect loved ones against divorce and lawsuits )if drafted properly.)

An asset protection trust, however, can avoid probate + protect beneficiaries + protect Mom from long-term care costs.  That is exactly what we did in this situation; set up an asset protection trust for mom.  The benefit of doing this is that if the family wanted to sell the home or cottage, they could at any time to pay for home care or assisted living, but if mom needed long-term care in a nursing home, they could have Medicaid cover the base level of care, the utilize the assets in the trust to pay for additional services or care as needed.

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