Asset Protection During an Economic Downturn

by Ira M. Leff, Esq.

June 2, 2009

Last week I wrote about the increased risks of Elder Law planning during these difficult economic times. Don't lose sight of the fact that unique opportunities also exist because of the depressed real estate and investment markets.

I have a single, 75 year old client (A/R) in a nursing home in Fulton County following an aortic rupture. She owns a 50 acre tract in Illinois which in normal times would be worth $200,000. At the current time the property is worth $18,120 according to the County Tax Assessor. Because the property is not my client's homeplace, it is not exempt for purposes of the Medicaid $2,000 resource limit.

In order to convert the property from an included asset to an exempt resource, my client could list it for sale. However, if she gets an offer of at least 2/3 of current market value it ceases to be exempt.

Another approach, which capitalizes on the current low value of properties, is for my client to give the land to her daughter. When she does so, there will be a transfer penalty imposed. But, the length of the penalty will be based upon the value of the gift. Since the land is worth $18,120, the penalty will be 3.68 months ($18,120 / 4,916.55 = 3.68 months).

The penalty starts to run the beginning of the month that A/R is otherwise eligible for Medicaid had she not made the gift. In this case, the property was transferred on May 26, 2009. A/R becomes eligible for Medicaid as of June 1, 2009, since transferring the property reduced her includible assets below the $2,000 resource limit. The penalty will run during June, July, August and part of September. Medicare and A/R's secondary insurance are likely to cover all of the nursing home costs until the end of July.

So, using this technique, my client is able to protect a $200,000 resource by spending about $9,000 on nursing home costs during August and September. During normal economic times, this would not have been possible. And, the land is not part of A/R's estate when she dies and Estate Recovery comes into play.

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