An Estate Planning Portfolio includes important information that will help you and your family manage your estate and affairs. The following table outlines important components.

Asset protection planning is extremely important to seniors because most do not have the option of going back to work. The biggest threat to the financial security for most seniors is disability, and the need for long-term care.

Planning for this risk is critical. Healthcare costs can be paid via savings and earnings, long-term-care insurance, MassHealth, or some combination of the three. Make sure to integrate your investment planning with your estate planning.

To protect your nest egg responsibly, you must plan ahead, not only by saving and investing wisely, but also by making sure you have the right legal documents in place. There are a lot of moving parts to this type of planning, but a trusted advisor can help your navigate it. Such an investment of time and resources is well worth it.

Everyone’s situation and priorities are different, so there is no one-size-fits all approach to long-term-care planning. You should, therefore, discuss all of this with a trusted financial advisor. When you do, use the following as a basic checklist:

1.Should I purchase long-term care insurance? And, if so, will that eliminate the need to consider MassHealth coverage?

2.Should I purchase life insurance through an irrevocable trust? (This would ensure that an inheritance goes to your children, so you can feel comfortable spending down your savings and home equity for your care when and if needed.)

3.Should I file a Homestead Declaration and put my home in an irrevocable trust? (This is generally advisable, especially if the equity exceeds the state limit ($828,000 in Massachusetts). It helps you qualify for Medicaid or MassHealth and protects your home from estate recovery at your death. If your other resources are insufficient to pay for care during the resulting five-year-penalty period, you may be able to buy long-term care insurance to cover that period of risk.)

Again, you should consult an elder law attorney or financial advisor to devise a plan that works for you. When you do so, you can point to this chapter and the table below to ensure that you cover all the correct legal documents and options in creating an “estate planning portfolio.”

Income-Only Irrevocable Trust
An Income-Only Irrevocable Trust has several benefits for those who are able to take advantage of them. If it’s properly arranged to meet MassHealth’s strict guidelines, assets can be protected and MassHealth benefits can be used to pay nursing and disability care. You can even transfer an interest in your home to the trust, which can prevent MassHealth from touching it upon your death under its estate recovery policy. But because assets transferred into this kind of trust will be evaluated using the five-year look-back rule, not everyone has planned far enough in advance to set this up. If you have planned ahead so a proper Income-Only Irrevocable Trust can be arranged, you can be assured that your assets will be protected; and when the time comes, your beneficiaries will receive them according to your wishes. You’ll also be able to draw income from the trust to support your living expenses while Medicaid covers your care.

Testamentary Trusts
Medicaid and MassHealth permit married couples to use a “testamentary trust” to protect each other from a situation in which one passes away and the other needs nursing-home care. This tool requires a will (and therefore probate), and must therefore be arranged while they are both alive and competent.

The way a Testamentary Trust works is fairly simple: the estate of the first spouse to pass away goes into trust for the surviving spouse. The trustee (typically one of the couple’s children) has total discretion to spend money for the surviving spouse. The trust is funded by money flowing into it from the estate at the end of the probate process. (It’s true that, as a general rule, it is preferable to avoid probate, but this is a potential exception.) The funds in the trust are not counted in determining eligibility for MassHealth or Medicaid coverage. In many cases, this plan is less expensive than long-term care insurance and does not tie up property as an irrevocable trust would. Notably, this remains true even if the surviving spouse moves to another state.

Of course, there are trade-offs, the main one being lack of control. The child cannot control the distributions from the trust and still get the protection the trusts are designed to provide. However, the child may be given some aspects of control over the trust and still maintain some protection. The amount of protection is somewhat uncertain based on recent cases attacking asset protection trusts. The laws governing this vary from state to state, but the general rule is that the less control the child has, the more ironclad the protection will be.

When a nursing home resident becomes eligible for MassHealth, all of his or her income, less certain deductions, is paid to the nursing home. There is a small personal needs allowance (currently $72.80) and a deduction for any uncovered medical costs (including medical insurance premiums). As you will see below, the situation is different if the nursing home resident is married with a spouse still living at home.

Your Spouse: Income Protection for Married Couples
The situation is more favorable if you are married. A married applicant, whose spouse continues to live in their home may have an exempt portion of their income paid to their spouse. In this situation, the spouse who continues to live at home is called the “community spouse.” The community spouse is permitted to accept income each month, called the “Monthly Maintenance Needs Allowance” (MMNA). The MMNA is between $1,991.25 and $2,980.50 per month (depending on whether a hardship can be demonstrated).

An example will help explain how this works. Let’s say Harry and Wendy are married senior citizens, and Wendy has to move into a nursing home. And let’s assume Wendy and Harry are collecting the following in Social Security income: Harry gets $1,400 each month, and Wendy gets $1,600 each month. Wendy’s $1,600 Social Security check would get distributed as follows:

Keep in mind that there is no limit on the spouse’s income, nor is there any obligation that they will contribute any income to the nursing home spouse’s cost of care. There are other potentially applicable exemptions (e.g., for business property) that, depending up on your individual circumstances, may be worth discussing with counsel.

Up to certain limits, a nursing-home resident’s home is not counted against the asset limit for MassHealth eligibility so long as the resident intends to return home. (Although this sounds paradoxical, “intent” is actually simple to establish.) The default limit on excluding the home as a countable asset is $500,000 of home equity. Some states, including Massachusetts, have exercised an option to increase that limit. In Massachusetts, the limit is currently $828,000. Notably, the limit is not applicable so long as a spouse, minor child, or disabled child of the nursing-home resident is living in the house.
For these reasons, MassHealth eligibility is an immediate concern to unmarried nursing home residents who own a home. Many nursing home residents do not have to sell their homes to qualify for MassHealth, but if the home is sold, the proceeds are not protected. Furthermore, under certain circumstances, MassHealth will put a lien on the property that entitles it to reimbursement upon sale. Finally, if the house remains in the MassHealth beneficiary’s probate estate, it will be subject to estate recovery.

For example, a nursing-home resident who owns an $800,000 home has a $50,000 “countable” asset, and will be ineligible for MassHealth coverage. In this situation, there are a few options:

1. Sell the house and spend the proceeds.

2. Borrow $50,000 against the house to lower the equity to $750,000.

3. Use a lower appraisal to argue that the valuation is wrong. Massachusetts will accept a tax valuation, but you may try to show that the actual market value is lower than the tax assessment.

4. Work out a deal with the nursing home whereby the facility will provide $50,000 of care in exchange for a mortgage on the property.

Special rules apply with respect to the transfer of a home. In addition to being able to make the transfers without penalty to one’s spouse, or blind or disabled child, or into trust for other disabled beneficiaries, the applicant may transfer her home (or an interest therein) to:

1. A child under age 21

2. A sibling who has lived in the home during the year preceding the applicant’s institutionalization and who already holds an equity interest in the home, or

3. A “caretaker child,” 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 such care that the applicant did not need to move to a nursing home.

Finally, a non-exempt transfer can be “cured” by the return of the transferred asset, either partially or in its entirety. In other words, if a mother gives $100,000 to her son, but within five years needs nursing home care, the son can transfer back the funds. Then, she can spend the money, apply for MassHealth coverage, and be evaluated for eligibility as if she had never made the initial transfer.

There are strict rules limiting the ability of nursing home residents to transfer their assets in order to qualify for MassHealth. Some asset transfers can trigger a period of ineligibility based on the state’s average private-pay cost of nursing home care. In Massachusetts, for instance, the penalty is one month of ineligibility for every $9,300 given away, or one day for every $310. A gift of $93,000 would result in 10 months of ineligibility (plus taxes payable from the estate). If you expect to enter a nursing home in 2017, and you gave $31,000 to a grandchild for college in 2014, you will have a penalty period of 100 days. Those 100 days can easily cost you over $30,000 out of pocket. If you want to transfer assets in order to be eligible for MassHealth, plan to transfer them five years before you expect to need MassHealth.

Many transfers must be reported on an application for benefits. An applicant must report all transfers made within the five years leading up to the application filing date. (The total length of the ineligibility period depends on the amount transferred.)

The upshot is that anyone transferring assets should assume they won’t be eligible for MassHealth for the following five years. That being said, there are certain exceptions that can be helpful. In particular, a transfer of assets to the following people is considered exempt from the transfer penalty:

1. A spouse

2. A blind or disabled child;

3. A trust for the benefit of a blind or disabled child; or

4. A trust for the benefit of a disabled individual under the age of 65.

Exempt Assets
To be eligible for MassHealth, you can’t have more than $2,000 in “countable” assets in your own name. Countable assets basically include everything except for the following exempt assets:
1. Personal possessions, such as clothing, furniture, and jewelry

2. Your principal Massachusetts residence with up to $828,000 in equity

3. One vehicle, if used for you or your spouse

4. A designated funeral fund (up to $1,500) for you, or a prepaid funeral fund (typically limited to about $9,000)

5. A life insurance policy worth up to $1,500, and

6. Other assets considered inaccessible under the law.

MassHealth covers the care of nursing home residents whose non-exempt “assets” are below the limits set by the state. In Massachusetts, that limit is currently $2,000 for a nursing home resident, and $119,220 for his or her spouse. This spousal exemption is called the Community Spouse Resource Allowance (“CSRA”) and is intended to prevent the spouse living at home from becoming impoverished as a consequence of their spouse’s long-term care needs.

If you don’t have long-term care insurance, then nursing home care is generally paid out of pocket. There are advantages to paying privately for nursing home care, especially if you are trying to enter a particular high-quality facility. But the expense is considerable – in some cases as high as $12,000 per month. Without proper planning, nursing home residents can easily lose the bulk of their savings to long-term-care expenses.

Those who qualify for MassHealth (or, in other states, Medicaid) may have the alternative option of having some of their nursing-home care covered by MassHealth. MassHealth will look at your “countable assets” to determine your eligibility. If you are eligible, MassHealth will pay up to $310 per day of your long-term-care costs. But to be eligible, you must be “impoverished” as defined by the strict laws governing MassHealth.

“Impoverished” is a bit of a strong word; you can actually own a home worth $828,000 and still qualify. So you don’t have to be completely destitute or even lose your home to receive government assistance. The three biggest problem areas are penalties for transferring assets, home equity, and annuities.

The primary objective of long-term-care planning is to protect your savings for you and your family. Helping you qualify for MassHealth nursing home benefits may be the best way of doing that. To know for sure, we must consider the MassHealth eligibility rules and the status of your income and your assets under those rules. Some types of assets “count” and others are “exempt,” meaning that they are ignored when determining eligibility.