College and Long Term Care – ??? (Part 2) #LongTermCare

            Last week I was talking about an increasing trend that we are seeing in cases that come through our office- grandparents who are paying for college, daycare and camp expenses for their grandchildren.  I told you that there is a danger for some who could be headed for financial ruin.  How so?

            The cost of long term care for the grandparent must be considered.  Do the grandparents have a plan in place to pay for their own long term care should the need arise?  Or could they run out of money?  At a cost of $150,000 or more for 24/7 round the clock care an extended period of years spending that kind of money could, for some, cause them to run out of money.  If they don’t have long term care insurance then the Medicaid program that covers nursing home level care would be in the picture.

            So what’s the problem?  Well, if you are paying for the needs of child or grandchild – such as college, daycare or camp – that is considered a transfer for less than fair value.  The money is being spent but the payer is not receiving something of equal fair market value back in product or service.  The grandchild is receiving the actual service.  The child, who has a legal obligation to support the grandchild is receiving a benefit.

            However, as it relates to the grandparent the expense is for someone else, not the grandparent.  That’s what makes it a transfer for less than fair value and thus subject to Medicaid’s 5 year lookback and Medicaid penalty rules.  Even in the case of college 529 plans, they are a problem for Medicaid since most contributions aren’t treated as a completed transfer.  (See my posts of 3-28-16 and 4-4-16.)

            For many grandparents who are still healthy it is their pleasure to be able to assist their children and grandchildren in this way.  But, 5 years is a long time and who knows whether a need for care could arise suddenly 2 or 3 or 4 years later?  If Medicaid is needed but is not an option it could be a financial disaster for the entire family.

            Is there a way out of this dilemma?  With some planning ahead the answer is “yes”.  You can “have your cake and eat it to”.  I’ll tell you more next week.