Will I Lost My Family Business if I Need Long Term Care (Part 2)

So, we were discussing Joe’s situation last week.  He owns a business and a building which rents space to his company and 3 other tenants.  Their combined value is $1.25 million dollars.  As we learned last week these assets are countable for Medicaid purposes as assets that need to be spent down.  Joe has a real problem.

 He tells me that he doesn’t want to sell the business or the building.  He has a will that leaves both to his sons.  “But”, I explain, “if he needs long term care he will have to sell both before he or Mary can qualify for Medicaid.  Joe becomes exasperated.  “My sons support their families through the business, just as I did.  I can’t sell it now.”

 I hear what he is saying.  More than simply an asset, the business is also the income that supports 2 families.  Yet, Medicaid doesn’t look at it that way.  Which is why Joe ought to strongly consider transferring both the business and the building out of his name now.  Careful consideration must be paid to the tax consequences but using some of the strategies we have discussed previously in this blog can protect Joe and his family.

 Medicaid transfers carry a 5 year look back so the time to start transferring is now, while Joe and Mary are still healthy.  There are gift and estate tax consequences to making transfers.  Joe and Mary can make lifetime gifts of up to $1,000,000 each before having to pay gift tax so they should be able to transfer these assets without paying tax.  They may also be able to eliminate the possibility of estate taxes by employing certain tax strategies. 
 
 If Joe wants to continue to receive the income generated by each asset he has some options.  He could transfer ownership to a trust set up so that he receives the income from anything held in the trust.  On the other hand, he can choose to continue to receive a salary from the business and rental income from the building as an employee.  He’ll need to consult with his tax advisor to see which way is best.

 But by putting a plan in place now to protect both he and Mary should they need long term care he is also preserving the financial viability of his company, which is critical to 3 generations of his family.  Just another example of how long term care has the potential to destroy a family unless you are prepared for it.