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The Heritage Law Center, LLC Blog

Be Wary of Investing for Your Parents

In helping people plan for a MassHealth (Medicaid) application, I encounter many different financial entanglements that must be overcome prior to achieving eligibility for my clients. One particular obstacle has

POSTED ON: September 9, 2011

In helping people plan for a MassHealth (Medicaid) application, I encounter many different financial entanglements that must be overcome prior to achieving eligibility for my clients. One particular obstacle has come across my desk several times in recent months and it involves adult children who are helping their parents invest their savings. While helping an elderly parent with their finances is a no-brainer for most families, managing a senior’s investments creates some complications that should be taken into account by anyone considering applying for MassHealth benefits in the future.

As I have discussed many times on in this blog, MassHealth imposes a strict five year look-back period on asset transfers for all applicant for long-term care benefits. This means that MassHealth will look at all accounts held by an applicant within the five years preceding their application to see if any asset transfers were made for less than fair market value. This could be a gift, transfer to a trust, or transfer to a person for something of minimal value in return. When such a transfer occurs, MassHealth imposes a period of disqualification equal to the amount of the transferred sum divided by the going daily rate of nursing care. This can sometime leave a senior without benefits for years at a time, during which they must spend out of pocket for all nursing care costs.

When a senior purchases an investment vehicle, such as stock, mutual fund portfolio or bonds, no disqualifying transfer takes place because they are receiving ‘value’ that in theory should be equal to their purchase price (we hope!). Investments will be counted under the MassHealth asset limits however.

But when a senior transfers money to their adult child so that the child can invest for them or can combine their own funds with the senior’s for maximum investing leverage, problems can arise. The act of transferring the money to the child can be seen as a ‘gift’ by MassHealth. The only way to cure such a transfer, and thus avoid a disqualification period, is to return the funds to the senior. However, if these funds are tied up in underperforming investments, or are so entangled with the child’s assets that it is not easy to discern what belongs to whom, a MassHealth application becomes much thornier.

If the child does not have enough liquid assets to repay the transfer, they may be forced to sell off their investments at a loss. If the investment is underperforming at the time, it may actually be impossible to recoup the full transfer value and the noble act of managing a parent’s investments could end up disqualifying them from the care they need.

If you have invested money on behalf of your parents, or if they currently hold investment assets they want to protect form long-term care costs, placing these assets in an irrevocable trust may be able to protect them. However, the five year look-back period for MassHealth means that the trust must be created five years before application. Planning ahead in this case is a must. Call the Heritage Law Center and let’s get started today.