Can we have our cake and eat it too?

A well-crafted estate plan considers the possibility that you or your spouse may not simply die, but might become incapacitated late in life and need long term care. Who would pay for such care? The federal government under Medicare? Generally not. The Commonwealth of Massachusetts under Medicaid/MassHealth?

Only under strict financial needs-based criteria. Our federal deficit is approximately $21,000,000,000 and growing. The trend with both federal and state governments is to shift the burden of care onto individuals. The message is that if you want to provide for your care deep into the future, then you should buy long term care insurance (“ltci”), invest wisely and be cautious in your spending.

If you are interested in protecting your savings from potential long term care costs but you do not want to purchase ltci or do not clinically qualify, then you need to consider transferring some of your assets directly to one or more of your children and/or an Irrevocable Trust. (Revocable Trusts avoid probate, but they do not protect assets). Irrevocable Trusts can work but they have been successfully attacked by Medicaid in the past several years. However, a couple of recent appellate court decisions support the viability of such trusts as an asset protecting strategy.

But there are still “asterisks” contained within those decisions. The cleanest way to avoid the possibility that Medicaid might challenge such Trusts in the future is to instead transfer assets directly to your children. But such a maneuver is fraught with its own host of potential downsides should the child (ren) becoming estranged, divorce, declare bankruptcy or be sued. There are also income and capital gains tax considerations associated with transferring assets. A key question in these situations is whether you can tolerate relinquishing control over your assets. You have to choose; retain your assets and hope bad things don’t happen or give up control and say that the asset is not reachable by you and therefore you qualify as indigent. You can’t have your cake and eat it too.