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In this month’s Ask the Expert, Attorney Lisa Hostetler Brown, founder of LawyerLisa, and certified specialist in elder law, shares insights to help us and our loved ones navigate the elder law and long-term care maze.
Concern: I’m worried my parents might not be able to afford to pay for the care they need. What should I do?
Expert Advice: It’s important to understand that there are a variety of options when planning for long term care costs. The biggest factor, aside from how much money they actually have, is how far in advance you plan. Families who create a long-term care plan well in advance of when they need it generally have the most options and save the most money. In the alternative, those who engage in crisis planning have way fewer options available to them and generally are not able to keep the extra resources that the planners do. As a general rule of thumb, a meeting with an elder law attorney is best scheduled at least 5 years before skilled care becomes necessary. This means scheduling a check-up before your parents need assistance with their finances or living situation, before hospitalizations, and before any cognitive impairment interferes in their day-to-day activities. A comprehensive long term care plan will incorporate their specific assets, income, debts, physical and mental condition, and family dynamics to best plan for achieving their long-term care goals. Many families do not have the financial resources to pay the increasing cost of in-home caregivers or facility costs and could greatly benefit from a Medicaid spend-down plan. Medicaid planning is a very complex area of the law that if done correctly can result in saving hundreds of thousands of dollars while allowing the government to pay for the cost of skilled long-term care should it become necessary.
Concern: I want to add my adult son to my real property. What is the best way to do that?
Expert Advice: There are a variety of ways to pass real estate to your family members. Some ways are definitely better than others. Of course, the best answer for you in particular will be based on a review of your exact financial, legal, and family situation, but here are some of the options. One of the most basic ways people add family members to their property is by executing a life estate deed. A life estate deed may be a good choice for families with very modest financial resources, only one adult child, and an adult child that is very responsible who is planning to provide care for the parent in the home. There are quite a few snags that a family may face where a life estate isn’t the best option, so it is important to fully analyze your situation in advance of this type of planning. Another option is adding your child to your deed. This option faces some of the same risks as the life estate deed, but also has the drawback of losing the step up in basis for the interest that is transferred. For example, if someone bought their property in 1990 for $80,000 and adds their child as joint tenant with the rights of survivorship and then passes away, the property will pass to the child outright. However, only half of the interest will receive a step up in basis at the decedent’s death. This means that if the property is worth $350,000 at the parent’s passing, the child will have a gain of $135,000 on half and will owe capital gains taxes on that amount when it’s sold. Which brings us to a revocable trust. If the parent deeds the property into their revocable trust during their lifetime, they get the benefit of full control of the property, lower real property taxes utilizing the legal residence and homestead exemption, and when the parent passes away, the entire property will receive a step-up in basis. This means their child will not have to pay capital gains tax when they sell it. There is another type of planning that utilizes an irrevocable trust. This type of planning is for families that want to protect some or most of their financial assets, even in the event a parent needs very expensive long-term care. For those who cannot afford $10,000 per month (or more) in care costs, an irrevocable trust done well in advance can protect financial assets and utilize government programs that pay for that care. Long-term care planning with an irrevocable trust may allow for the preservation of assets and more options for the family down the road.
Remember, each situation is unique. You will need to utilize the plan that is best for you and your family. But one thing is true for everyone- having a plan in place before you need it can make a world of difference.
To submit your Elder Law Concern to Ask the Expert, please email your Concern to Melissa@LawyerLisa.com. All Concerns are subject to re-writing by the Expert and all Expert Advice is general in nature. For legal advice regarding your situation and to have your specific questions answered, please contact LawyerLisa, LLC at info@LawyerLisa.com to schedule a consultation. For additional information, please visit https://www.LawyerLisa.com/lcp Lisa Hostetler Brown is a Certified Elder Law Attorney, certified by the National Elder Law Foundation, ABA accredited.