A loved one needs immediate nursing home care and has not planned ahead. Will the family have to spend-down all assets? Luckily, no.
It is still possible to protect one-half of an individual’s assets, even if s/he is already in a nursing home, by using a promissory note. It works as follows: the nursing home resident transfers all of his/her funds (less the permissible resource allowance, currently $15,450 for 2019) to an individual/family member. The person receiving the funds signs a note promising to pay back approximately one-half of the monies transferred (the loaned assets), plus interest, to the resident on a monthly basis. The monthly amount to be paid back to the resident is calculated using the nursing home daily rate less the resident’s income. Upon payment of the monthly amount to the resident, the resident writes a check for the same amount to the nursing home. The note repayment amount covers payment to the nursing home during the penalty period (number of months) incurred by the transfer of the other one-half of the assets (the gifted assets). The loan payments are calculated to end at the same time that the penalty period on the gifted assets ends, thereby making the nursing home resident Medicaid eligible on that date. The family member will keep one-half of the assets (the gifted assets) free and clear.
The rules are very stringent and clients often run afoul of the specific requirements. Your Elder Law attorney should give you detailed instructions to follow. Always call your attorney if you are unsure before taking any action. It is better to ask questions then to make a costly misstep.
Planning in advance is always recommended but clients can take comfort in the fact that not all will be lost.