This is a real fact pattern.
I recently met with a family whose 86 year old Mother was admitted to a nursing home for dementia. They sought my assistance in obtaining Medicaid eligibility to pay for the nursing home, which cost $15,000 per month. Mother is still on Medicare which pays for the first 100 days; days 1-20 are free and days 21-100 are with a co-payment. Once Medicare stops paying, Mother will be paying $15,000 per month unless she can become eligible for Medicaid.
Mother’s only asset is a house which is rented to a tenant. Mother has not lived in the house for the last seven year due to her need for care and assistance and thus, has been shifting her residency between the homes of two children.
Years ago, Mother, and her predeceased spouse, met with their family attorney who drafted a trust. The trust appeared to be an irrevocable trust. The family indicated that their Father went to the family attorney seeking to protect the house and was advised to transfer it to this trust. Mother has no other estate planning documents such as a power of attorney or statutory gifts rider, Last Will and Testament or health care proxy, and the family agrees that she has no capacity to sign these documents.
I reviewed the trust and found that the trust permits the trustees to distribute principal to Mother. If you follow my articles or have heard me lecture, you know that in order for the assets of an irrevocable trust (Medicaid Trust) to be protected, no principal can be distributed to the creators of the trust. Based on this oversight by the family attorney, the house is not protected.
Attorneys find problems and then solve those problems. Unfortunately in this case, my options are limited. As I stated above, the house is not protected by the trust. Ordinarily, this would not be fatal because a Medicaid applicant’s primary residence is an exempt asset for eligibility purposes. The trust protects against a lien or estate recovery. The problem here is that Mother has not used the house as a primary residence for the last seven years, thus it is not an exempt asset. This means that when she applies for Medicaid, it will be counted against her.
Where this happens, we might look to remove the house from the trust and possibly sell it. However, since Mother has no capacity, a guardianship proceeding would need to be commenced which will be costly and take time. Moreover, Mother is the trustee of the trust (and should not be) which raises another legal issue.
Since Mother is in immediate need of a nursing home, the bills will begin to pile up. It is unlikely she can come home to a child’s house or her own house unless the tenant is evicted. The nursing home will most likely institute some sort of legal action against the Mother and possibly the trust. Surely, the nursing home will look for an opportunity to discharge the Mother and if the Mother requires a hospital stay, it is unlikely that she will be allowed to return to this nursing home.
Unfortunately, all of this could have been avoided if the trust was properly prepared and if there was a valid power of attorney in place. This attorney just didn’t know. It is imperative that you work with an elder law attorney and not a friend of the family or someone who practices general law. The consequences may be severe, irreversible and costly.