elderly woman in wheelchair KatarzynaBialasiewicz/iStock/Thinkstock
RISING COST: In Wisconsin, the average monthly cost to stay at a nursing home is $8,500.

Irrevocable trust one way to pay for nursing home

Legal Matters: There are three other ways to pay for nursing home care.

By Tim Halbach

As the cost of staying at a nursing home continues to rise, paying for such care has become one of the biggest financial concerns for the elderly. In Wisconsin, the average monthly cost to stay at a nursing home is $8,500.

There are generally four possibilities for paying for a nursing home. The first is Medicare. Generally, if you are at the hospital for at least three days and then go to a nursing home for recuperative care, Medicare should pay for most of the first 100 days of care.

The second is to have long-term care insurance, which can be costly. The third is paying for the nursing home care yourself. The fourth is having the state and federal government program known as Medicaid pay for it.

Becoming eligible to have Medicaid pay for your nursing home stay and to avoid recovery of costs paid by Medicaid under the Estate Recovery Program can be quite complicated. There are a number of alternatives, especially if one spouse is still at home. However, one way to become eligible for Medicaid in Wisconsin is to give all of your assets away, such as to your children, at least five years before you go to the nursing home. To determine if you are eligible for Medicaid, the government looks at what assets you owned during the previous five years at the time you apply, and if you haven’t owned any, you will likely be eligible to have Medicaid pay for your nursing home stay. 

Giving your assets to your children has some other advantages. It is rather inexpensive to do, and generally no tax is owed.

There are many disadvantages though. A child could die before you, and his or her estate plan likely says everything goes to the spouse (who may or may not like you). Also, if a child gets divorced, these assets will play a role in that divorce, meaning your spouse may get less of the rest of the couple’s property than he or she otherwise would have. Further, if your child runs into financial problems, the assets you gave that child are assets those creditors can collect against. Finally, your children get your carryover tax basis, which means if they later sell land you paid $500 an acre for, for considerably more than that, they have to pay tax on the difference between the sale price and what you paid for it.

One common alternative to gifting assets directly to your children is to form an irrevocable trust and have one more of your children be the trustees. The advantages of an irrevocable trust are numerous. The trust can provide that if a child dies before you, his or her share goes to his or her children (rather than that in-law who may not like you). The assets owned by the trust should play no role in the event of a child’s divorce. A creditor of your child cannot go after the assets in the trust. Your children will also, if the trust is drafted correctly, receive a step-up in basis. This means if they wait to sell your property until after your death, they can sell the property that is in the trust tax-free.

Another advantage of an irrevocable trust instead of gifting is you can retain the right to the income from the assets you put into the trust. For example, if you put 200 acres of farmland that are rented out into the trust, you can keep the right to the rent money and the farmland, after five years; it doesn’t have to be sold to pay for your nursing home stay. Finally, as the creator of the irrevocable trust, you can retain the right to change the beneficiaries of your trust among your descendants. That means if one of your children disowns you, you can still change the trust to have that child’s share go to his or her children or your other children.

Perhaps the only disadvantage to forming an irrevocable trust as compared to gifting is it costs. The most challenging decision of all, though, can be deciding whether to give up your financial security by transferring your assets to your children, whether outright or in trust, and putting your financial security in their hands. Nonetheless, if you chose to create an irrevocable trust, it should be carefully drafted by a knowledgeable estate planning attorney. 

Halbach is a partner in the Chilton, Wis., ag law firm Twohig, Reitbrock, Schneider and Halbach S.C. Call Halbach at 920-849-4999. 

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