Do you hope to leave your children an inheritance? If so, what sacrifices are you willing to make to assure that you do so? Are you working longer or scrimping on spending for yourself? If so, why? Haven’t you raised your children and perhaps paid expensive college tuitions? Shouldn’t they be able to stand on their own two feet?
Spending on Care
The issue of leaving an inheritance often comes into play when seniors’ care costs increase and they begin digging into their savings. In our practice, we’ve seen many seniors who are reluctant to do so, both because of their concern about running out of funds themselves and their desire to be able to leave something to their family. This can mean a huge sacrifice for family caregivers, whether spouses or children. While I often urge families to spend money as necessary to avoid “burning out” caregivers, the problem for families is often that they don’t know how long a chronic need for care will last. Will it be months or years? A few months of high costs may be affordable, but if the need for care lasts for years, what will the family do if the money runs out?
The decision can be a bit easier if the issue of preserving money for an inheritance is taken off the table. In a column in The New York Times, “The Children will be Fine. Spend their Inheritance Now.” Ron Lieber tells his parents:
I expect nothing from you going forward except love, conversation, holiday meals and grandchild babysitting. Spend your money on your health and comfort and making the kinds of memories with close friends and family members that will last even as other, older ones, fade. Leave a bit aside for me or for charity if it truly makes you happy, requires no sacrifice or makes sense for tax reasons. But otherwise, spend what you have and have faith that the education and life skills you already gave me are more than enough.
Of course, there are other children who are looking forward to their inheritance, perhaps to help finance their own retirement. They may well argue against spending money on care or choose the cheaper of various care options. These issues often play into questions about MassHealth planning and reverse mortgages.
MassHealth Planning
MassHealth planning involves qualifying for MassHealth coverage of care costs, whether at home, in assisted living or in a nursing home. To qualify, the beneficiary must be “impoverished” under MassHealth’s extremely complicated rules. Often, it’s possible to become “impoverished” by transferring assets either outright to the next generation or into an irrevocable trust. But every decision to transfer assets involves balancing the interest in preserving assets for future generations (or, in some instances, for a spouse) against the interest in having funds available to pay for living and care needs. In the best possible world, transferring assets will not affect your care, certainly having more funds available allows for more control and freedom to choose where to live. It’s not unusual for seniors to be forced to move to nursing homes rather than staying in their homes because MassHealth coverage of nursing home costs is comprehensive, whereas it’s coverage of home care expenses usually only supplements privately-paid or family-provided care. We’ve seen this dilemma give rise to intrafamily disputes about care spending.
Many clients balance their various goals by taking steps to protect their homes but not their savings, feeling relatively comfortable about spending down their liquid funds if necessary, knowing that their home will pass to their offspring. But what if they need to dip into the equity in their homes to cover their living expenses or costs of care?
Reverse Mortgages
Reverse mortgages permit seniors who do not have the income to qualify for conventional mortgages or lines of credit to dip into the equity in their homes to pay for living expenses or care costs. Many older homeowners are reluctant to take this step. On the one hand, it seems odd to protect your home if you’re living hand-to-mouth or have care needs you can’t otherwise afford. On the other, for many people, the home is the most significant asset they hope to leave their children, and the children may be expecting this inheritance.
One problem with MassHealth planning is that you cannot get a reverse mortgage on a house in an irrevocable trust or life estate, which are forms of ownership that provide MassHealth protection. Families need to understand that taking steps to protect the home can mean it’s equity is unavailable when and if needed, unless the house is sold.
Conclusion
There’s no right answer. As I often say to clients, in 20 years, when we’ve seen what life has in store for us, we’ll know exactly what steps we should take today. Absent a crystal ball, we have to make our best guess in terms of balancing asset protection and the need for financial resources in the future. As suggested above, for many clients, the right balance is to take steps to safeguard their homes, but not their savings and investments. In terms of their liquid assets, they follow the credo of the old bumper sticker that reads: “We’re Spending Our Children’s Inheritance.”
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