You have put in long hours at the office for the better part of three
or four decades, and are now approaching your retirement years.
Throughout your working life, you and your spouse have been
diligent in paying your bills, financially supporting your children
through college, and still managing to save enough money to
support yourselves during your golden years. Now that the kids
are gone and the 401(k) plan has been funded, you are finally
able to buy that vacation home that you have been dreaming of
since you started working in your twenties. However, before you
sign that purchase and sale agreement and pull the beach cabana
out of storage, you should know how to protect your prized asset
from your unanticipated long-term care costs.
Medicaid, also known as MassHealth in our state, is a public
benefit program that will pay completely for your care in
a nursing home if you financially qualify for the program.
Fortunately, the government has recognized that a spouse
remaining in the community should not become impoverished
to pay for the care of their ailing husband or wife. Therefore, the
MassHealth regulations permit a community spouse to retain the
primary residence in his or her sole name while qualifying the
ill spouse for MassHealth benefits. Additionally, the community
spouse is allotted $113,640 in savings, while the ill spouse can
retain $2,000 in his or her individual name. Further planning
that is not the subject of this article can be accomplished to assist
the community spouse in protecting the spousal assets in excess
of $115,640.
Unfortunately, a second residence is not given the same
protective treatment under the MassHealth regulations. The
regulations provide that a second residence is a fully countable
asset which will render an ill spouse ineligible for MassHealth
benefits to pay for his or her care in a nursing home. If the
community spouse agrees to sell the second residence, then
MassHealth will typically approve the ill spouse’s application
for long-term care benefits pending the sale of the residence.
MassHealth provides the community spouse with a nine month
period to sell the residence. The community spouse is obligated,
per the MassHealth regulations, to make a reasonable effort to sell
the property during this nine month span. A spouse’s rejection
of an offer that is within two-thirds of the property’s listing price
could result in termination of the ill spouse’s MassHealth benefits.
Once the second residence is sold, the ill spouse will again be
disqualified for MassHealth benefits if the spousal assets exceed
$115,640 as a result of the sale. The community spouse will need
to engage in a further spend down of the sales proceeds or more
complicated MassHealth resource planning before the ill spouse
can become re-eligible for long-term care benefits.
If your retirement dreams did not include the forced sale of
your prized and long-awaited second residence, then one sound
planning strategy involves the transfer of title of the residence
into an irrevocable trust. Following the transfer of the second
residence into the irrevocable trust, the grantors of the trust
cannot apply for MassHealth benefits for a period of five years.
After the five year MassHealth disqualification period has
expired, the second residence will be protected from the grantors’
long-term care costs.
The trust must meet several requirements in order to gain its
protective status. Most significantly, it must be irrevocable
and cannot make principal available to the grantors at any
time. However, the grantors retain the ability to use the second
residence for the duration of their lives. For many clients,
the restrictive aspects of the trust are often outweighed by the
enormous benefit gained from protecting the second residence
for the enjoyment of their family for years to come.
Last minute planning strategies also exist for those clients who
have never taken steps to establish an irrevocable trust and are
now facing a catastrophic health crisis. In some situations, clients
may be able to preserve their second residence by demonstrating
to MassHealth that the residence generates rental income that
is necessary for the community spouse’s self support. This
exception to the MassHealth regulations is most typically
successful when a client can prove to MassHealth that the second
residence has been rented and generated income for a period
of years. Because every client’s situation is highly fact specific,
it is best to seek the advice of qualified counsel in the event of a
spouse’s unanticipated institutionalization.
The MassHealth regulations can seem daunting. However, with
careful planning it is possible to preserve your second residence
from your long-term care costs.
