Dear Michael: You spend a lot of time telling people about how to get out of paying for their long-term care. Don’t you think these people should pay for their care if they have the assets to do so? Why is it okay for some people to pay for their care and others not? I’m just curious as to what your thinking is? – Concerned Tax Payer.
Dear Concerned Tax Payer: I am certainly not here to tell people how they can get out of paying for their long-term care. I pay taxes as well as you do and I’m well aware of the effects of long-term care on Social Services. Almost 40 percent of every dollar in taxes is spent on Medicare, Medicaid and Social Services – up a whopping 24 percent from just 15 years ago.
But what about the people who should carry flood insurance? What happens when they live by a river or by the ocean and expect the government to bail them out in the event of an epic flood or a hurricane as we just witnessed on the East Coast. Shouldn’t all of those people be held liable for not being able to see that where they live could lead to consequences? Shouldn’t they have had to carry flood insurance to cover their water damages brought on by their horrific storm?
My job, the same as your banker, your attorney – literally any other advisor you can think of – is to advise you within the limits of what you can do and to tell you the limits of what you can’t do.
For example, is it okay to sell your land for half price to your child? It is now that the gift taxes have been raised to $22 million per couple or $11 million for a single. That’s IRS’s new deal.
However, if you need care and don’t have enough money to pay for your care, Medicaid can still step in – within five years of the transaction completing – and determine if a gift was made and if the benefactor – your child – will have to pay the difference. In addition, they can call in a contract for deed even after the five-year period is up to make up costs of care – causing your child to have to go to the bank at significantly higher rates to pay off the balance.
But, that’s Medicaid’s deal and Medicaid and the IRS really don’t care what the other one is doing or how their rules affect people.
Perhaps you would be better off with a life estate whereby you continue to receive income and use from the property for your lifetime, but it passes on to the child you wish upon your death. The deed itself is protected from Medicaid attachment after five years – but not the income. The income is going to go to pay for your care – or up to the allotment allowed your spouse of around $2,800 per month for spousal care and the rest used for your care.
What you should have in your battle plan – if you are married – is how is your spouse going to live on that much income if you need care?
Perhaps you have a plan now to pay off all of your mortgages, buy a decent car and pay for it, have a home that’s set up so that perhaps the children have a way to pay the heat and electricity.
This monthly allotment isn’t enough to live on, so you and your spouse better have a few chats about what can be paid off, what someone else can pay, and how to be able to live on this amount of money per month. This would be step one in your battle plan for dealing with possible long-term care.