A loved one needs immediate nursing home care and has not planned ahead to protect assets. Will the family have to spend-down all of their loved one’s money? Luckily, no. The family can still save approximately one-half of the assets.
It is still possible to protect one-half of an individual’s assets, even if s/he is already in a nursing home, by using a promissory note. It works as follows: the nursing home resident transfers all of his/her funds (less the permissible resource allowance, currently $14,850) to an individual/family member. The person receiving the funds signs a note promising to pay back approximately one-half of the monies transferred (the loaned assets), plus interest, to the nursing home resident on a monthly basis. The monthly amount to be paid back to the resident is calculated using the nursing home daily rate less the resident’s income. Upon payment of the monthly amount to the resident, the resident writes a check for the same amount to the nursing home. The note repayment amount covers payment to the nursing home during the penalty period (number of months) incurred by the transfer of the other one-half of the assets (the gifted assets). The loan payments are calculated to end at the same time that the penalty period on the gifted assets ends, thereby making the nursing home resident Medicaid eligible on that date. The family member will keep one-half of the assets (the gifted assets) free and clear.
The following example will help illustrate: Mrs. Jones has $230,000 in assets. She transfers $220,000 to her daughter, $110,000 of which is a gift and $110,000 of which is a loan. Mrs. Jones’ daughter signs a promissory note for the loan of $110,000 stating that she will repay the loan at the rate of $11,000 per month. The penalty period based on the gifted assets of $110,000 will run for 10 months (calculated by dividing the amount gifted by the regional rate in the county where the nursing home is located). The $110,000 loan will be repaid to Mrs. Jones over the 10 month period at $11,000 per month, which Mrs. Jones will use to pay the nursing home during that period of time, along with her other monthly income (Social Security, pension). After 10 months, the loan will be re-paid, the gifted money will be protected and Mrs. Jones will be eligible for Medicaid benefits.
The rules are very stringent and clients often run afoul of the specific requirements. An Elder Law attorney will give you detailed instructions to follow. Always call your attorney if you are unsure before taking any action. It is better to ask questions then to make a costly misstep.
Planning in advance is always recommended but clients can take comfort in the fact that not all will be lost.
Jennifer B. Cona, Esq. is the managing partner of the Elder Law firm Genser Dubow Genser & Cona, LLP, located in Melville. Ms. Cona handles all aspects of Elder Law on behalf of families and represents over 100 health care facilities in NY. Ms. Cona is a New York Times Super Lawyer and has received the Leadership in Law award, Top 50 Women in Business and Top 10 Legal Eagle award.