Do You Know What’s in Your Long Term Care Insurance Policy? (Part 1)
Bob’s dad, Jim can no longer stay in his home alone. His dementia is advancing and Bob is now ready to move Jim to an assisted living facility. Jim had always told Bob not to worry about how to pay for care if he needs it because he has a long term care insurance policy but Bob had never actually seen it. Now that he wants to put in a claim for benefits he looked thru Jim’s papers and found the policy. Jim has a traditional long term care insurance policy. It pays up to a certain dollar amount per day for long term care, in his case $150 per day. This confirmed what his dad had told him for years. There is a lifetime cap as well. In Jim’s case the lifetime limit is $164,250. The policy will last Jim 3 years at the maximum rate of $150 per day. If he needs less than $150 a day of care then the policy could pay out over a longer period of time. When Bob looked further, however, he saw some problems. Generally, long term care insurance policies can cover home care, assisted living care and nursing home care
Dangers of the Due on Transfer Clause (Part 2)
Last week I was telling you about George’s problem. He had transferred his home to a trust to protect it but then received a letter from the bank referring to something called the due on transfer clause. A transfer of title without permission could trigger the bank’s entitlement to be paid back the entire loan balance immediately. Some transfers are problematic and others are not. For example, a transfer to a revocable living trust may not trigger the clause. A transfer to an irrevocable trust probably would. Does that mean then, that a revocable trust is the answer. Not if asset protection for long term care purposes is the goal because assets in a revocable trust are countable for Medicaid eligibility purposes. They would have to be spent down first, before Medicaid eligibility is reached. So, what should George have done? And why would it have been OK for Jamie to transfer her mother’s home to a trust (see my post from 5/11/15), but not for George to do the same? That’s because there was no mortgage on Jamie’s mom’s home. When there is no mortgage or the balance is manageable, then transferring the home
Dangers of the Due on Transfer Clause
To follow up on the same topic of the past two weeks, transferring the home, recently we received a call from George regarding the transfer of his home to a trust. He received a letter from the bank holding his mortgage, stating something about the due on transfer clause. George still owes $100,000 on his mortgage. The problem is that when the bank learned of the transfer of the home to a trust it informed him that he must pay off the mortgage in full. But, didn’t I tell you last week that a transfer to a trust would have been a better solution for Jamie? Yes, but as you’ll see here, each situation has different considerations. In Jamie’s case, her mom did not have a mortgage so we weren’t concerned with the issue that George is now facing. So, what exactly is the due on transfer or due on sale clause? The clause provides that if you transfer ownership of your home without the bank’s approval, it can force you to pay back the entire mortgage balance immediately. Federal law establishes certain limitations to the clause. For example, banks can’t enforce the clause when one co-owner dies and
Thinking about transferring your home to your children? (Part 2)
Last week I told you about Jamie’s mistake. Mom and Dad transferred their home to Jamie 7 years ago to protect it from Medicaid’s spend down requirements. While the transfer was outside of Medicaid’s 5 year look back, now that Mom was planning to move in with Jamie the tax consequences of the sale of that home had become an issue. Jamie, as owner of the home, will have a capital gains tax bill of $30,000 to pay because she can’t utilize the $250,000 exclusion of gain on the sale of a primary residence. Jamie and her husband have their own home. So, how could this have been avoided? Setting up a certain type of a trust and transferring ownership of the home into that trust would have preserved the capital gains tax exclusion. As confusing as it might sound, the home would not have been “owned” by Mom and Dad for Medicaid purposes but they could have preserved the capital gains tax exclusion on the sale of a primary residence, under federal tax code Section 121. There are other advantages to the trust as well. A transfer outright to a child means the child owns the home. That
Thinking About Transferring Your Home to Your Children?
Jamie called because her dad was in need of Medicaid. He was now in a nursing home and Mom was living at home. They had about $120,000 of countable assets. I asked about the home and Jamie told me her parents had transferred it to her 7 years earlier. Jamie was confident when she asked me to confirm that the home is protected and would not be subject to New Jersey Medicaid’s spend down requirements. I told her she was correct, but then I asked her whether Mom would remain in the home. That’s when Jamie told me that the plan is to sell the home and have Mom move in with Jamie and her husband. Jamie told me the house would probably net $200,000. That money plus the $60,000 of countable assets that Mom could keep under Medicaid’s Community Spouse Resource Allowance would be used to support Mom. I then asked Jamie if she had accounted for capital gains tax in her calculations. Jamie sounded puzzled. “Aren’t Mom and Dad entitled to exclude gain from the sale of their home,” she asked. “It has been their primary residence for 30 years.” I explained to Jamie that since she
More Than Just Power of Attorney
More often than not, the calls we receive in our office concerning a long term care crisis are made by one or more of the adult children of the senior in failing health. We ask whether there is a power of attorney in place which will legally permit a family member to act for the senior, which will allow us to guide those families. However, we also know that just because the adult child has the legal ability to act for the parent doesn’t necessarily mean that child is emotionally ready to step forward. A role reversal is necessary. Without it, the POA is useless because the child is powerless to act. The parent, in many respects, must become the child and the child the parent. When Dad says, after nearly starting a fire in his home or falling down the stairs for the third time, that he’s ok and sees no reason he can’t continue to live alone, it’s often difficult for the children to step up and make the tough decisions. So often they are waiting for Dad to say “it’s time”. For many parents that day will never come. It becomes more difficult when the parent