Three Reasons Why Giving Your House to Your Children Isn’t the Best Way to Protect It From Medicaid

November 12, 2018

Would Giving Your House to our Children be a Good Decision?

You may be afraid of losing your home if you have to enter a nursing home and apply for Medicaid. While this fear is well-founded, transferring the home to your children is usually not the best way to protect it.

Although you generally do not have to sell your home in order to qualify for Medicaid coverage of nursing home care, the state could file a claim against the house after you die. If you get help from Medicaid to pay for the nursing home, the state must attempt to recoup from your estate whatever benefits it paid for your care. This is called “estate recovery.” If you want to protect your home from this recovery, you may be tempted to give it to your children. Here are three reasons not to:

house

1. Medicaid ineligibility.

Transferring your house to your children (or someone else) may make you ineligible for Medicaid for a period of time. The state Medicaid agency looks at any transfers made within five years of the Medicaid application. If you made a transfer for less than market value within that time period, the state will impose a penalty period during which you will not be eligible for benefits. Depending on the house’s value, the period of Medicaid ineligibility could stretch on for years, and it would not start until the Medicaid applicant is almost completely out of money.

There are circumstances under which you can transfer a home without penalty, however, so consult a qualified elder law attorney before making any transfers. You may freely transfer your home to the following individuals without incurring a transfer penalty:

  • Your spouse
  • A child who is under age 21 or who is blind or disabled
  • Into a trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances)
  • A “caretaker child,” who is defined as a child of the applicant who lived in the house for at least two years prior to the applicant’s institutionalization and who during that period provided care that allowed the applicant to avoid a nursing home stay.

2. Loss of control.

By transferring your house to your children, you will no longer own the house, which means you will not have control of it. Your children can do what they want with it. In addition, if your children are sued or get divorced, the house will be vulnerable to their creditors.

3. Adverse tax consequences.

Inherited property receives a “step up” in basis when you die, which means the basis is the current value of the property. However, when you give property to a child, the tax basis for the property is the same price that you purchased the property for. If your child sells the house after you die, he or she would have to pay capital gains taxes on the difference between the tax basis and the selling price. The only way to avoid some or all of the tax is for the child to live in the house for at least two years before selling it.

Before giving your house away consider the important items above. Please know there are other ways to protect a house from Medicaid estate recovery, including putting the home in a trust. To find out the best option for you, let’s talk. Simply call to schedule a consultation.

How Much Does a Nursing Home in Missouri Cost?

November 12, 2018

The 2018 data is in. The cost of Skilled Nursing Home Care in Missouri according to Genworth is $5,543 per month for a private room and $5,019 per month for a semi-private room. That’s a cost of $66,516 per year for a private room and $60,228 for a semi-private room.

facility

How does this cost compare?

Nursing home care is expensive. For 15 years, Genworth has developed the Cost of Care Survey to help families understand the costs of varying types of care across the U.S. The 2018 data is in and the median cost of a private nursing home room in the United States increased to $100,375 a year, up 3 percent from 2017.  At the same time, Genworth reports that the median cost of a semi-private room in a nursing home is $89,297, up 4 percent from 2017.

Alaska continues to be the costliest state for nursing home care by far, with the median annual cost of a private nursing home room totaling $330,873. Oklahoma again was found to be the most affordable state, with a median annual cost of a private room of $63,510.

So while the cost of skilled nursing home care in Missouri is expensive, it is among the least expensive in the country.

For more on Genworth’s 2018 Cost of Care Survey, including costs in all 50 states, click here.

3 Concerns Common Among Estate Planning Clients

March 23, 2017

Recently I worked with a family who had a family farm just outside Cape Girardeau county. They told me they had three main estate planning concerns.

First, they had two kids. They wanted to make sure that when they were gone, their son and daughter would be treated fairly. It was also important to them that no decision regarding their property could be made without both their son and daughter agreeing to it.

Second, they had about 150 acres. The husband’s father had gone spent several years in a nursing home so he had first-hand experience with his family having to “spend down” their hard-earned savings to pay for his nursing home care. The husband wanted to know what was available so that his wife and kids wouldn’t have to go through a similar experience.

Third, they were involved in a small business and wanted to arrange their affairs so that if they were sued, that no one could take their home away from them.

There are certain types of revocable trusts, irrevocable trusts, and limited liability companies that can be set up in Missouri which can help families solve these problems.

How Can Owners of Rental Properties Limit Liability?

February 2, 2017

A significant number of my clients have rental properties. Many are casual landlords with just a few rental properties. Others have dozens of rental properties. In both scenarios, the owner of the rental properties can take some common sense steps to limit liability and protect their assets.

First, the landlord should obtain adequate insurance. Our main concern here is with liability insurance. Often my clients select policies that have liability insurance of at least $500,000.

Second, the landlord should form an LLC for the rental properties. In Missouri, LLCs are very cost effective ways to do what its name says, limit liability of the owner. Yet, too many individuals have LLC with sloppy or amateur Operating Agreements. Yet, when it comes to asset protection, having a carefully crafted Operating Agreement is the smart way to maximize the protection of your assets and minimize your personal liability.

In 2013, Missouri passed legislation allowing the creation of a new type of LLC, a Series LLC. Because it is new, there remain several unanswered questions about Series LLCs. Yet, the basic premise is promising for landlords. The Series LLC would allow the landlord to get the benefits of putting all of one’s rental properties in separate LLCs, while eliminating some of the cost of doing so. A Missouri Series LLC consists of an LLC with any number of series. This means a landlord could create one series, “My Rental Properties LLC” and then create 20 series of it, “My Rental Properties LLC, Series A”, “My rental Properties LLC, Series B,” and so on. Each Series is separate and distinct from the other Series. In order to get full asset protection and limited liability, each Series must maintain its own separate books and records. We’ll post more on Series LLCs in Missouri if/when they become more popular.

Third, owners of rental properties need to be strategic in how you title the rental units, as well as the ownership of the LLC. This is one area where we can use the asset protection provided by “Tenants by the Entirety” for married couples to provide additional protection for our clients.

If you own Rental Properties, we are happy to assist you in minimizing your liability, protecting your personal assets, and ensuring a smooth transition to the next generation.

3 Common Types of Asset Protection

June 7, 2016

Clients often ask what steps can be done to protect their assets. My typical response: “what type of asset protection are you interested in?” Most clients aren’t quite sure how to respond… they are unaware that there are different types of asset protection available. The 3 most common types of asset protection I help clients with are:

  1. Asset Protection from Medicaid. Medicaid is a health program administered through the states. Missouri’s version of Medicaid is called Mo HealthNet. Medicaid provides very valuable care for those with limited financial resources. This is often the case with elderly individuals who go into a nursing home. Since nursing home care is expensive (thousands of dollars per month), elderly individuals are often very interested in steps they can take to protect some of their assets for their loved ones. The most common tool we use for this is called a Medicaid Asset Protection (MAP) Trust. One common use of a MAP Trust is to protect real estate so that it passes to a client’s children instead of having a lien placed on it by Medicaid.
  2. Asset Protection from Business Liabilities. Most business owners have the fear of “What if…”. “What if my employee does something and as a result I am sued?” “What if my product injures someone?” “What if a customer is injured on my property?” The answer to those “What ifs” is to plan. Part of that planning is certainly insurance. Yet, another part is structuring your business (businesses) the correct way to minimize liability. Whether your business is an LLC, S-Corp, or C-Corp, there are steps we can take to minimize an owner’s personal liability for business incidents.
  3. Asset Protection from Lawsuits. Almost daily you hear about someone getting sued. Sometimes the claims have merit. Other times the claims are frivolous and a waste of time, energy, and money. Planning ahead is important to minimize your personal liability. Especially if you are in a higher risk profession (doctor, pharmacist, lawyer, etc.), planning today is critical for asset protection tomorrow. This planning ranges from the simple (titling assets or establishing LLCs) to the complex (offshore trusts with professional trust protectors).

Protecting assets is doable… the initial steps are straight forward and simple… the key is asking the question and getting started before you need it. There is no silver bullet for asset protection. Instead, think of it as layers of protection. Get started building your layers of asset protection today.

How can Owners of Rental Properties limit liability?

March 11, 2016

A significant number of my clients have rental properties. Many are casual landlords with just a few rental properties. Others have dozens of rental properties. In both scenarios, the owner of the rental properties can take some common sense steps to limit liability and protect their assets.

First, the landlord should obtain adequate insurance. Our main concern here is with liability insurance. Often my clients select policies that have liability insurance of at least $500,000.

Second, the landlord should form an LLC for the rental properties. In Missouri, LLCs are very cost effective ways to do what its name says, limit liability of the owner. Yet, too many individuals have LLC with sloppy or amateur Operating Agreements. Yet, when it comes to asset protection, having a carefully crafted Operating Agreement is the smart way to maximize the protection of your assets and minimize your personal liability.

In 2013, Missouri passed legislation allowing the creation of a new type of LLC, a Series LLC. Because it is new, there remain several unanswered questions about Series LLCs. Yet, the basic premise is promising for landlords. The Series LLC would allow the landlord to get the benefits of putting all of one’s rental properties in separate LLCs, while eliminating some of the cost of doing so. A Missouri Series LLC consists of an LLC with any number of series. This means a landlord could create one series, “My Rental Properties LLC” and then create 20 series of it, “My Rental Properties LLC, Series A”, “My rental Properties LLC, Series B,” and so on. Each Series is separate and distinct from the other Series. In order to get full asset protection and limited liability, each Series must maintain its own separate books and records. We’ll post more on Series LLCs in Missouri if/when they become more popular.

Third, owners of rental properties need to be strategic in how you title the rental units, as well as the ownership of the LLC. This is one area where we can use the asset protection provided by “Tenants by the Entirety” for married couples to provide additional protection for our clients.

If you own Rental Properties, we are happy to assist you in minimizing your liability, protecting your personal assets, and ensuring a smooth transition to the next generation.

What is Tenancy by the Entirety?

February 17, 2016

Tenants by the Entirety is based on the longstanding idea that when a man and woman marry, they create a new entity, a marital unit. Thus, husband can own property, wife can own property, and the marital unit can own property as tenants by the entirety.

Tenants by the entirety is separate and distinct from tenants-in-common or joint tenants. In tenants by the entirety, husband and wife don’t own 50% but rather the marital unit owns 100% of the property. As a result, neither spouse can sell tenants by the entirety property without the consent of the other spouse.

So why hold property as tenants by the entirety? The big (actually it is huge!) advantage is asset protection. In Missouri, tenants by the entirety property cannot be subject to an individual spouse’s debts.

For example, Husband and Wife own their house worth $250,000 as tenants by the entirety property. Husband goes through a mid-life crisis and buys a top-of-the-line Mercedes, a new Harley-Davidson motorcycle, and then takes a 30-day luxury vacation across the globe. All the while, wife continues her normal, responsible life. If (perhaps when…) Husband stops making payments on his new car, motorcycle, and vacation, his creditors will come after him for payment. They will likely end up suing him and receiving a court judgment against him. That judgment will allow his creditors to go after and collect from any of Husband’s separate property. But so long as Wife hasn’t co-signed on these debts, Husband’s creditors will not be able to collect against their marital assets, namely their home, since it is owned as tenants by the entirety.

Tenants by the Entirety is a very powerful tool. Especially for individuals in professions where there is a higher risk of being sued (doctors, pharmacists, lawyers, etc.) tenants by the entirety can help protect your assets. Consider how this could help provide asset protection to a doctor when faced with a medical malpractice lawsuit.

Further, in 2011 the Missouri Legislature created what is called a “Qualified Spousal Trust” (QST). A QST is able to hold tenants by the entirety property and preserve the asset protection features of tenancy by the entirety. This is especially important for clients who may have older estate plans, to consider updating their estate plan to take advantage of the new law.