A Family Owned Business Long Term Care Nightmare (Part 2)
Last week we were talking about George’s tragic stroke and need for nursing home care. He still owns the manufacturing business he built and the warehouse which houses it. His son, John, asked me whether those assets are protected from being spent down towards care before Medicaid qualification. Like so many other questions about Medicaid , the answer is complicated. But, I told John that there were steps that they absolutely need to take now.
Let’s first review the Medicaid basics. As the healthy spouse, George’s wife, Claire, can keep the home and just under $110,000 in assets. The rest of their $800,000 in liquid investments must be spent down or converted to non-countable assets. The building and business are also countable – well maybe. Medicaid rules allow for inaccessible assets to be treated as “excludible”, in essence not countable towards the $110,000 limit.
It may be possible to treat them as inaccessible, if they can’t be sold easily. Remember that this is a family business and the real estate is an industrial building that houses the business. Neither is easy to sell on the open market. John then reminded me that he and his brother, James, run the business and want to keep it. “It was always Dad’s plan to give it to us,” he told me.
Unfortunately, his failure to put that succession plan in place makes it much more complicated to do now. “If he gives you the business and building now,” I told John, “it is a transfer subject to a Medicaid penalty and he must provide for his nursing home care for the next 5 years before he can qualify for Medicaid. That would be roughly $500,000, leaving your mom with $300,000 and the house.”
There was a long pause and then John said “that’s not a whole lot for Mom to live on and she could live another 10 or 15 years or more. Are there other options? I then explained that he and James could buy both assets themselves. “But we don’t have $1,000,000 to buy both,” John exclaimed. Well, then, they could buy the business and we could treat the building as inaccessible. Claire could also possibly buy a bigger home, with some of the countable assets, which would still be exempt. This would mean they could preserve more than the $110,000 for Claire.
It all was very confusing to John, which I certainly can understand. And not the best time for his family to have to make such important decisions, in what we call “crisis mode”. I told John that we could definitely help him but there is a lot to do and no time to waste. John scheduled an appointment for his family to meet with me. Before he hung up the phone he said that the fact his dad had never completed a succession plan or purchased long term care insurance was always in the back of his mind but he now realizes, for the first time, how devastating those oversights turned out to be for his whole family. I couldn’t agree more.