Protecting Assets: What Seniors And Their Loved Ones Need To Know

Many people believe their long-term health care costs will be paid for by Medicare. Others believe their private health insurance will cover such costs. Generally, neither is the case. So how does the average senior meet the looming costs of long-term health care without exhausting all assets? Many families engage in asset protection planning by setting up trusts in advance of a health crisis.

In order to protect assets for Medicaid eligibility purposes, a living trust must be irrevocable. The senior cannot have access to the principal of the trust but can maintain the right to receive income generated by the trust assets (dividends, interest, etc.). Almost any type of asset may be held in a trust, such as cash, title to the home, bank accounts, CDs, stocks, brokerage accounts, mutual funds and annuities.

Once five years pass (the current “look-back” period), the assets held in the trust are protected with respect to Medicaid. The senior will not be obligated to spend down those assets on the cost of care. Instead, the assets will pass to the senior’s heirs and beneficiaries.

Many seniors start by protecting their home, often the family’s largest asset. Once the irrevocable trust is executed, a new deed to the property is signed naming the trust as the new owner. The trust will typically contain terms so that the senior will keep all current real estate tax exemptions, such as STAR and Veteran’s exemptions. In addition, the beneficiaries will get certain tax advantages when they inherit the home. And the senior’s hands are not tied; the house can be sold and the trust will then hold the cash or a new house can be purchased within the trust. The only difference is that the trustee must attend the closing with the seniors—a small detail to protect a valuable asset.

So what happens when 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 for 2017) 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. Winston 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. Winston’s 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 Winston over the 10-month period at $11,000 per month, which Winston 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 repaid, the gifted money will be protected and Winston will be eligible for Medicaid benefits.

The promissory note rules are very stringent and clients often run afoul of the specific requirements. It is absolutely necessary that the family work with an elder law attorney to implement such a plan.

It is never too early to plan and establishing an asset protection trust can be a great first step. While planning in advance is always recommended, families can take comfort in the fact that not all will be lost.

Jennifer B. Cona, Esq., is a managing partner at Genser Dubow Genser & Cona in Melville (

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Jennifer B. Cona
Jennifer B. Cona, Esq., is a managing partner at Genser Dubow Genser & Cona in Melville.

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