With nursing homes costing between $12,000 to $20,000 per month, most seniors should be armed with an Elder Law Power of Attorney that may save assets that would otherwise go to nursing home costs, even on the eve of needing a nursing home.
No one wants a nursing home but the longer we live, the higher the chance we may need a nursing home at the end of life.
In a Power of Attorney, you name people you choose, called agents, to manage your legal and financial affairs if you are incapacitated. You avoid or reduce the risk of a time consuming and costly guardianship proceeding where a judge appoints a legal guardian to manage your affairs.
The Elder Law Power of Attorney is a stronger form of a Power of Attorney that includes unlimited gifting powers, which allow a single person who applies for Medicaid in a nursing home to protect assets from nursing home costs by using the gift and loan strategy.
For example, if Mom, who is single, needs a nursing home and has $500,000, she will not qualify for Medicaid to pay for her care. She may only keep $15,900 under Medicaid law. One option is for Mom to spend her money on monthly nursing home costs until only $15,900 remains. Virtually all her nest egg goes to the nursing home instead of to her child, which was the plan.
If Mom has the Elder Law Power of Attorney, the gift and loan strategy works like this. Half of the money, $250,000, goes to the child as a gift under the unlimited gifting powers. The other half of $250,000 goes to the child as a loan under a promissory note with a rate of interest.
Any gifts made in the past five years cause a penalty period. Mom must self-pay the nursing home for a period based on the amount of the gift. In her case, Mom will have to pay the nursing home for about 20 months. Every month during the penalty period, the child pays Mom a monthly payment that, with her income, pays the nursing home bill. At the end of the 20 months, Mom qualifies for Medicaid to pay for her care for the rest of her life and the child keeps the $250,000 gift. Saving half using the gift and loan strategy is sometime referred to as “half a loaf planning.”
A standard Power of Attorney without unlimited gifting powers limits gifting to $500 per year and cannot save Mom’s assets.
The Elder Law Power of Attorney also allows the agent to create, amend and revoke trusts for future circumstances that require more planning. The agent may also change beneficiaries, which is helpful if a beneficiary is disabled and on government benefits.
If Mom had created a Medicaid Asset Protection Trust five or more years before needing a nursing home, she could have saved the entire nest egg for her child. Pre-planning is always more protective, but the Elder Law Power of Attorney is indispensable if needed.