Category Archives: Independent Living

Planning for Long-Term Care (Part 1)

Written by Evan Farr

Are you one of the millions of Americans over age 50 who has not yet started planning for long-term care?

As financially responsible adults, most of us are prepared for some unexpected disasters – we pay for health and property damage insurance, and many of us have taken some steps toward funding for our retirement. But very few of us have prepared for one of the most devastating of unexpected events – the need for long-term care. According to most estimates, more than 60% of us will need long-term care at some point in our lives. If you are a member of the “sandwich generation” – responsible for an older parent – the odds that either you or your aging parent will need such care are even higher, and the costs to your lifestyle, finances, and security can be catastrophic. Consider the following long-term care statistics:

• About 70% of Americans who live to age 65 will need long-term care at some time in their lives, over 40 percent in a nursing home.
• As of 2011, the average cost of a nursing home in Northern Virginia was over $100,000 per year.
• A recent insurance company study found that 46 percent of its group long-term care claimants were under the age of 65 at the time of disability.

Contrast the above long-term care statistics with statistics for automobile accident claims and homeowner’s insurance claims:

• An average of only 7.2% of people per year file an automobile insurance claim.
• An average of only 6.15% of people per year file a claim on their homeowner’s insurance.

The need for long-term care drastically alters or completely eliminates the four principal retirement dreams of elderly Americans:

1. Remaining independent in the home without intervention from others
2. Maintaining good health and receiving adequate health care
3. Having enough money for everyday needs
4. Not outliving assets and income

Unfortunately, the reality is that the majority of Americans make no plans for long-term care. Not only does this lack of planning affect older Americans, but it also often has an adverse effect on the older person’s family, with sacrifices made in time, money, and family lifestyles. The stresses of being a caregiver for an older parent often result in a deterioration of the caregiver’s own physical and emotional health. Because of changing demographics and improved health care, the current generation — more than ever — needs to actively plan for long-term care.

So what are basics of a good Long-Term Care Plan? First and foremost are two critical documents that need to be prepared by an experienced and knowledgeable Elder Law Attorney. These two essential documents are:

• A Financial Durable Power of Attorney containing Asset Protection Powers; and
• An Advance Medical Directive containing a Long-Term Care Directive.

The third essential document, which you can prepare on your own, is a Lifestyle Care Plan.

Part 2 of this article will explain and explore these three critical documents to give you a greater understanding of the need for and importance of these vital long-term care planning instruments.

These essential legal documents, however, are only part of the requirements for a good Long-Term Care Plan. The other important component is a sound financial plan for how to pay for good long-term care. There are three primary ways to plan in advance for how to pay for long-term care: (1) build up your income and life savings in order to be able to self-fund your future care needs; (2) protect your assets by purchasing long-term care insurance; or (3) protect your assets by using an asset protection trust designed to legally protect your assets and allow you to qualify for Medicaid, the governmental program that pays for about 70% of people living in nursing homes. For some families, a fourth way to pay for long-term care is a type of Veteran’s pension benefit called “Aid & Attendance.”

Unfortunately, option 1 (building up your income and life savings to self-fund future care) is not feasible for most Americans, especially in these troubled economic times. Accordingly, Parts 3 through 5 of this series will explain and explore these three methods of paying for long-term care. Part 3 will focus primarily on using long-term care insurance to protect your assets; Part 4 will explore the use of a special type of asset protection trust to protect assets and gain early access to Medicaid; and Part 5 will explain the Veteran’s Aid & Attendance benefit.

There are many things that you can do now to begin to put together a good Long-Term Care Plan. The most important thing you can do is to act now! You may have limited resources in the future or health problems that will prevent you from taking care of the things you can easily take care of today. The Farr Law Firm specializes in long-term care planning and we would be happy to assist you in your preparations. Please visit us at or call 703-691-1888.

The Reverse Mortgage Saga Part 6: “How One Reverse Mortgage Lender is Helping Americans Stay at Home”

Written by Evan Farr

I have chronicled the ups and downs of the reverse mortgage industry for the past five years.  In 2010, I exposed two major problems with the reverse mortgage industry — the “competency problem” and the “expense problem.”

  1. I praised reverse mortgages in 2007 as a viable way for seniors to remain at home as long as possible in my article, Reverse Mortgage Home Equity Loans.
  2. I viewed reverse mortgages then as an excellent choice for various reasons, explained in detail in my early-2010 article, Using a Reverse Mortgage to Pay for Home Care.
  3. By mid-2010, I wrote about what I perceived to be discrimination in the lending industry. I completely explain why that was such a nefarious issue to my clients and the elderly at-large in the article, Huge Problems with Reverse Mortgage Industry.
  4. Merely a few months later I found myself writing about the “expense problem” in, Reverse Mortgage Rules Changing Again, noting Congress’ plan to increase HUD’s Mortgage Insurance Premium.
  5. In February, 2011, I reported on the fact that one of the reverse mortgage industry’s largest lenders, Bank of America, had dropped out of the reverse mortgage business in No More Reverse Mortgages, Announces Bank of America.
  6. Last week I explained how the Farr Law Firm has taken steps to help clients get around the “competency problem,” in The Reverse Mortgage Saga Part 5: “How the Farr Law Firm is Helping Clients Stay at Home.”
  7. This week I provide an update that may signal an end to the “expense problem.”

All of these problems amounted to the beginning of the end for this national industry, because by February, 2011, Bank of America announced it was exiting the industry.  MetLife followed Bank of America’s footsteps as of April 30th, 2012.

Officially, Bank of America exited the reverse mortgage industry due to strategic business reasons.

Discussed in No More Reverse Mortgages, Announces Bank of America, the Bank cited “competing demand and priorities, [requiring resources to be allocated elsewhere.]”  However, as the article also explained:

“The Bank of America decision [came] in the wake of bad press related to its conventional mortgage business, and peaked recently when a temporary restraining order was issued January 20 of [2011] against ReconTrust, a subsidiary of Bank of America.  ‘ReconTrust is trustee on thousands of loans that are in some stage of foreclosure and approximately 8,920 of such loans have already been directly affected by this injunction,’ reported the Las Vegas Sun.   The order was issued based on a woman’s suit against Bank of America for “fraudulently trying to foreclose on her home,” as reported by The Street.”

When MetLife announced its’ plans to exit the industry on April 26, 2012, a press release was issued stating the following:

MetLife’s entire retail banking business, including mortgages, represented under two percent of [its’] 2011 operating earnings.  Given MetLife’s strategic focus as a global insurance and employee benefits leader, [it] decided in 2011 that a bank holding company structure was no longer appropriate.”  (Emphasis added)

However, just because MetLife’s retail banking business represented less than two percent of operating earnings in 2011 does not necessarily mean it was a miniscule part of its overall business, or business investments.  Was the MetLife decision truly a strategic one, or were there organizational problems beneath the surface of the press release??

After looking into the issue – that is, past the MetLife press release – it seems as if there are no such organizational distractions as may have been the case with Bank of America.  According to sources quoted by BusinessWeek, the banking sector of MetLife – including its reverse mortgage services – simply were not profitable enough to continue operations.    And the burden of increased regulatory standards may have also played a role, further tipping the scales to exit the industry, suggested The Wall Street Journal.  The bottom line is best summed up by Reverse Mortgage Daily, stating that the consensus is that unlike the Bank of America situation (where there were problems, perhaps, behind the scenes, “[The MetLife decision is] just another stop in a bigger exit strategy on the part of MetLife, which has been shedding business lines since last year and recently saw its CEO step down.”

Without Bank of America and MetLife, the national industry may be gone, but reverse mortgages are not, as they are still available through independent brokers.   The question thus becomes, whether reverse mortgages, as they currently are now offered, are worthwhile options for seniors who want to remain in their homes for as long as possible?  Furthermore, what will these institutions do to help senior citizens that the larger institutions did not?  I would say waiving the exorbitant fees is a good start.

The “Expense Problem” and one Lender’s Answer

All one needs to do is take a glance at the graph below to see how the “expense problem” affected many American’s decision-making processes when deciding whether to take a reverse mortgage, starting right around the beginning of the recession in 2009.  It is drastic, to say the least.  Although my article, Huge Problems with the Reverse Mortgage Industry mainly focused on the “Competency” problem, another lawyer aptly commented on the blog:

“[W]hat really convinced me [a reverse mortgage] was not right for my brother-in-law’s parents . . . were the very high fees charged on the mortgage.”

True to the back-and-forth nature of this entire saga, at least one lender is using a tactic to salvage the reverse mortgage home equity loan: no upfront fees!  The fees associated with a reverse mortgages have been a long-time sticking point for many people.  I received an email late last month from Ernie Castro, Director of Reverse Mortgage Finance for Mortgage Solutions, LTD.  In that email, Mr. Castro acknowledged the expense issue:

“Huge upfront fees . . . without a doubt . . . have been the #1 objection to the Reverse Mortgage during my career when discussing the product with financial professionals, elder law attorneys, and CPA’s.  Mortgage Solutions has negotiated with one of our lenders a fixed rate Reverse Mortgage with no upfront fees to the borrower…no origination fee, no upfront mortgage insurance fee, no service fee.”

The Reverse Mortgage Lenders Association shows just 73,000 reverse mortgages taken out in 2011, down from a high of 114,000 in 2009. 2012 numbers are not released in full because the fiscal year ends in October, but clearly they are on track to register the worst year since reverse mortgages became very popular in 2007, and the largest 1-year percentage-based decline in history.

What happened?  Speaking as an elder law attorney, if I were to chart my enthusiasm towards reverse mortgages for seniors as a way to remain at home longer, it would mirror this chart:

With those fees no longer a deterrent, will the industry come back to life?  Perhaps, but only if people are able to jump the “competency” hurdles.  If more elder law attorneys provide POA clients with Affidavits of Competency to get signed contemporaneously with the POA signing, then maybe, just maybe, we will see this graph reverse its’ current trend.

A Final Thought (for now)

As everyone knows in these days of financial volatility, market conditions can change quickly and without notice, so for anyone who has previously considered a reverse mortgage but balked at the unattractive fees previously associated with them, now would be a good time to speak with an elder law attorney about how to take advantage of a reverse mortgage if remaining at home for as long as possible is important to you or a loved one.

For even more elder law updates and news stories, please be sure to like our Facebook page and join the discussion!  Who knows, we may even feature your comments and opinions in a future blog post!


Image courtesy of

The Reverse Mortgage Saga Part 5: “How the Farr Law Firm is Helping Clients Stay at Home”

Written by Evan Farr
Reverse Mortgages rules change frequently

Credit: (Deirdre O'Neill) / CC BY-SA 2.0

“Presume not that I am the thing I was,” wrote William Shakespeare in the play, 2 Henry IV, reminding us that nothing stays the same.

On the personal side, we all change over time; our families and our other assets grow and shrink.

On the business side, entities both small and large come and go; Internet and technology companies appear out of nowhere and just as often disappear into cyber-obscurity; and the economy has a mind of its’ own.  In the wake of the global financial crisis that began in 2007 and the collapse of so many financial giants, it is no surprise that the reverse mortgage industry has recently undergone a major shakedown.

For the past five years, I have chronicled the reverse mortgage industry – starting when its popularity was peaking back in 2007.  I exposed two major problems in 2010, leading me to conclude that I could no longer, in good-faith, remain a supporter of the reverse mortgage.   Those two problems I shall refer to as the “competency problem” and the “expense problem.”

This week and next week I will add two more articles to my continuing series on reverse mortgages.  This week I will explain how the Farr Law Firm has taken steps to help clients get around the “competency problem,” and next week I will provide an update that may signal an end to the “expense problem.”

Here’s a summary of, and links to, my previous articles in this series:

  1. I praised reverse mortgages in 2007 as a viable way for seniors to remain at home as long as possible in my article, Reverse Mortgage Home Equity Loans.
  2. I viewed reverse mortgages as an excellent choice for various reasons, explained in detail in my early-2010 article, Using a Reverse Mortgage to Pay for Home Care.
  3. By mid-2010, I wrote about what I perceived to be discrimination in the lending industry I completely explain why that was such a nefarious issue to my clients and the elderly at-large in the article, Huge Problems with Reverse Mortgage Industry.
  4. Merely a few months later I found myself writing about the “expense problem” in, Reverse Mortgage Rules Changing Again , noting Congress’ plan to increase HUD’s Mortgage Insurance Premium.
  5. In February, 2011, I reported on the fact that one of the reverse mortgage industry’s largest lenders, Bank of America, had dropped out of the reverse mortgage business in No More Reverse Mortgages, Announces Bank of America.

The “Competency Problem” Persists: How The Farr Law Firm is “Combating” This Issue

"Combating" the "Competency Problem"

After interviewing dozens of reverse mortgage lenders, it became readily apparent that it is practically an industry guideline to refuse to honor the Power of Attorney (POA) presented for use in connection with obtaining a reverse mortgage: it is systemic.  I first discovered this travesty when two of my own clients were sent on scavenger hunts for documents certifying the applicant’s competency when the POA was signed, and a second document certifying the applicant is now not competent, both to be completed by the applicant’s doctor.

I described why these steps were creating an “insurmountable roadblock” for some clients in detail in my May 5th, 2010 article, Huge Problem with Reverse Mortgage Industry, because I believed then – and still do today – that these practices are not only unfair, but illegal and discriminatory.  However, because of this unfair practice, the Farr Law Firm has made adjustments to its’ Incapacity Planning services in order to help our clients navigate these obstacles.

How is the Farr Law Firm Helping?

When our clients come in to sign their Incapacity Planning documents (including their POA), we provide them with an Affidavit of Competency to give to their doctor to certify competency as soon as possible after the document signing, thus satisfying the first major “competency” hurdle.  Of course, it is the responsibility of the client to actually go to the doctor and get the affidavit signed, but having the affidavit ready to hand to the doctor to sign helps the client get it done.

For clients with borderline competency who might wind up needing to use a reverse mortgage, we provide them with an Affidavit of Competency for their doctor to complete prior to the document signing.

Why Reform is Still Needed

Most people want to remain at home, as long as possible, before entering a nursing home for long-term care.  A reverse mortgage is a great tool to accomplish this desire, because in most cases significant in-home health care will become necessary at some point.  In-home caregiving is not cheap, and thus adequate funds are needed to ensure one can be hired.  Although our firm has taken steps to get around the “competency” hurdle, most attorneys have not, and even though our current efforts will be helpful for clients signing our documents today, they are no help for clients who come to us or other attorneys with an old POA and no Competency Affidavit.  So once again, I implore you to visit HUD’s Housing Discrimination Complaint Website and file a “lending discrimination complaint” if you believe you have experienced discrimination.  If enough people cry foul, perhaps HUD will outlaw arbitrary, harmful “scavenger hunts.”

Stay Tuned for Next Week

Next week I will provide an update that may signal an end to the “expense problem.”

Image Credits:

Portrait of Shakespeare (Deirdre O’Neill) / CC BY-SA 2.0

“Combating” the “Competency Problem” – Free images from

Using a Reverse Mortgage to Pay for Home Care

Written by Evan Farr

Many of my clients ask me how I feel about reverse mortgages, and even more so this past week because of a favorable story that appeared in last week’s Washington Post entitled “Reverse Mortgages are Not the Next Subprime.”  This excellent article was written by the ”Mortgage Professor,” a Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania (incidentally, my Alma Mater), and clears up much of the confusion and myths and fears surrounding the reverse mortgage.  I encourage all of you to read it.  Another good source of information about reverse mortgages is the Federal Trade Commission Fact Sheet

As a Certified Elder Law attorney, one of my primary goals is to help preserve the dignity and enhance the lives of my elderly clients.  For many of my clients, remaining in their homes as long as possible is one of their highest priorities.  I have been a long-time fan of reverse mortgages because they help my clients do exactly that — remain in their homes as long as possible.  

Why? Because in order to remain in your home as long as possible, you will most likely at some point need some home care.  “Home Care” can be health care and/or supportive care provided formally in your home by health care professionals (typically referred to as home health aides) or by paid or unpaid family members or friends (typically referred to as caregivers).  Often, the term “home care” is used to mean non-medical care, or custodial care, which may be provided by persons who are not nurses, doctors, or other licensed medical personnel.  The term “home health care” typically refers to care that is provided by a licensed health care professional — most often a Certified Nurse Assistant (CNA).  However, the terms are often used interchangeably, and for simplicity in this article I will use the term “home care” to refer to both types of care.

The goal of home care is typically to to allow you to remain at home and age in place, rather than being forced to move to an assisted living facility or nursing home.  Home Care providers render services in your own home. These services typically include a combination of health care services and life assistance services.

Health care services may include services such as wound care, administration of medication, physical therapy, speech therapy, and occupational therapy.  Life assistance services typically include help with daily tasks such as meal preparation, medication reminders, laundry, light housekeeping, errands, shopping, transportation, companionship, and help with the activities of daily living (ADLs), which typically refers to six activities (bathing, dressing, transferring, using the toilet, eating, and walking). 

Although some home care is provided by family members for free, most family caregivers need to be paid, and these payment arrangements should always be made pursuant to a written caregiver contract (prepared by an Elder Law Attorney) between the caregiver and the care recipient.  Because home care is quite expensive, having the proceeds from a reverse mortgage is often one of the  only ways that elders can afford to pay for appropriate home care. According to The 2009 MetLife Market Survey of Nursing Home, Assisted Living, Adult Day Services, and Home Care Costs, the 2009 national average hourly rate for home health aides increased by 5.0% from $20 in 2008 to $21 in 2009. The national average hourly rate for homemaker/companions increased by 5.6% from $18 in 2008 to $19 in 2009. 

Most of my clients, when they start out needing home care, will typically start with receiving 4 hours of care 3 days a week, which costs about $1,000 per month and is easily affordable for many people.  But over time, most of my clients progress to the point of needing upwards of 12 hours per day of home care, costing over $7,000 per month, and very few people can afford to pay for this type of care without eventually tapping into their home equity via a reverse mortgage.

The most common type of reverse mortgage is the Home Equity Conversion Mortgage (HECM), which completely protects your ability to remain in your home. So long as you pay your property taxes and homeowners insurance, and maintain your property, you can remain in your home forever. If the reverse mortgage lender fails, any unmet payment obligation to the borrower will be assumed by FHA. 

According to the Mortgage Professor’s article mentioned in my first paragraph, in 2009 about 130,000 HECMs were written, and feedback from borrowers has been mostly positive. In a 2006 survey of borrowers by AARP, 93% said that their reverse mortgage had a mostly positive effect on their lives.

For many of my clients, a reverse mortgage is the best way, and often the only way, for them to be able to afford to remain at home, despite the fact that reverse mortgages are expensive to obtain.  However, reverse mortgages are not for everyone, as there are other programs that may be able to help you remain in your home.  For instance, many of my clients are eligible for the Veterans Aid and Attendance benefit or for home-based Medicaid, or can be made eligible for these benefits through our process of Asset Protection

Whether you own your home outright or in a Revocable Living Trust or in my proprietary  Living Trust PlusTM Asset Protection Trust, if you think a reverse mortgage might be the solution you need, please contact me for a free consultation so I can evaluate your specific situation and advise you as to whether a reverse mortgage is your best option for allowing you to live comfortably in your home.

Did you see last Sunday’s Washington Post article?

Written by Evan Farr

Did you catch last Sunday’s Washington Post article by David Hilzenrath, about the October bankruptcy filing of Erickson Retirement Communities? My phone has been ringing all week with people concerned about this news, because Erickson is a major developer and manager of Continuing Care Retirement Communities (CCRCs) for senior citizens.

In the Washington area, Erickson communities include: Greenspring in Springfield, Virginia; Ashby Ponds in Ashburn, Virginia; and Riderwood in Silver Spring, Maryland. I spoke with the author prior to the article and gave him some of the information that he referenced in the article. As he explained, the recession and the real estate crisis have raised concerns for people who paid significant money — often hundreds of thousands of dollars — to enter CCRCs such as these.

It’s important to understand that the deposits that senior pay are simply for the privilege of moving in; at most CCRCs, the deposits generally do not confer any ownership in the real estate, and the deposits are in addition to the regular monthly fees for the facility, which increase as the level of care increases — from independent living up to assisted living and eventually nursing home care. Here’s a link for the article in case you missed it:

In a companion article (, headlined Scrutinize any contract to avoid nasty surprises at continuing care community, the author points out that the entrance agreements for these facilities should always be reviewed by an attorney. “If you are considering moving to a continuing care retirement community,” the author says, “you would do well to consult a lawyer and read the fine print of any contract to determine whether the potential benefits outweigh the risks.” I have recommended this to my clients for years, and encourage everyone in the Northern Virginia area moving into a CCRC to have me review the contract.  But please note — it is very important to have me review the contract prior to signing the contract. For many of the people calling me this week who read the article and are concerned, there’s nothing I can do because they already signed their contract. These folks I referred to a real estate litigation attorney to discuss the possible results of what might happen if they fail to go through with their contract. Those results could include being sued for breach of contract by the owner of the facility, and possibly being forced to pay significant monetary damages.

One risk in connection with the entrance contract is that most CCRC contracts require you to agree not to give away any assets that would bring your net worth below a minimum requirement (in order to help assure management that you have the ability to pay their ongoing charges). The author quotes me in article, saying “Evan H. Farr, a Fairfax lawyer who specializes in issues facing the elderly, recommends putting any extra assets in an asset protection trust before you move in.” 

I’m very glad that the author included this quote in his article, because far too many people move into these types of facilities without giving asset protection a second thought. If you are considering moving into a CCRC, it behooves you to not just have me review the contract, but to also have me create the proper type of asset protection trust for you to put your extra assets in before you move in to the community.  What is the proper type of asset protection trust?  It’s my proprietary Living Trust PlusTM Asset Protection Trust — the trust that protects your assets from the expenses of probate PLUS lawsuits PLUS the catastrophic expenses of nursing home care. 

As the creator of the Living Trust PlusTM and the leading expert on this type of trust in the country, I’ve taught thousands of attorney across the country about the benefits of these trusts, and I’m actually teaching another course on this subject to attorneys tomorrow at an annual conference of the National Academy of Elder Law Attorneys.  If you want to find out more about the  Living Trust PlusTM, please come to a free class I’m teaching for members of the public on Saturday, November 14, 2009 at 10:00:00 AM, at the Tysons Corner Mariott, 1960-A Chain Bridge Road, McLean, VA 22012. 

By coming to this FREE class, you’ll learn what thousands of attorneys and clients already know . . .

- That a Will puts your assets through probate, and is a very poor estate planning document.
- That a regular living trust protects your assets from probate, but offers you no asset protection.
- That my Living Trust PlusTM Asset Protection Trust protects your assets from the expenses of probate PLUS lawsuits PLUS the catastrophic expenses of nursing home care.

To register, just go to

I hope to see you soon!

Update on Virginia Life Estate Law

Written by Evan Farr

In June of last year, I wrote that “in the near future, life estates will no longer be considered exempt assets when applying for Medicaid.” This was due to the fact that the Virginia General Assembly had recently passed legislation instructing DMAS (the Department of Medical Assistance Services, the agency that oversees the Virginia Medicaid program) to amend the State Medicaid Plan to consider all life estates as countable resources in the determination of Medicaid eligibility. After my column, the new change in Medicaid policy did indeed go into effect. However, since then, the policy has been changed yet again. This article will summarize the changes in the life estate law and explain the current Virginia Medicaid policy.

Life Estate Rule Made More Restrictive
Prior to August 2008, the Virginia Medicaid State Plan treated life estates in real property as exempt resources, meaning that the ownership of a life estate did not affect Medicaid eligibility. Effective August 28, 2008, the aforementioned change in Medicaid policy made life estates created after that date countable resources under most situations, though subject to the same exclusions that apply to other residential real estate (e.g. the home subject to the life estate would be exempt if the Medicaid Applicant, or a spouse or dependent child, was living in the home or the Medicaid Applicant was using “reasonable efforts” to sell the property interest, or during the first 6 months of institutionalization provided the Medicaid Applicant intended to return home).

The American Recovery and Reinvestment Act of 2009 (Recovery Act) that President Obama signed into law on February 17, 2009 provided increased federal funding for state Medicaid programs. To be eligible for the enhanced federal financing, states may not have eligibility standards, methods or procedures in place that are more restrictive than those effective on July 1, 2008. States that implemented more restrictive policies after July 1, 2008 had until July 1, 2009 to reverse these restrictions to receive the increased funding.

More Restrictive Life Estate Rule Rescinded
The August 28, 2008 change in Virginia Medicaid policy regarding life estates created a more restrictive eligibility standard than was in existence in Virginia on July 1, 2008. Therefore, in order for Virginia to qualify for the increased federal funding, the more restrictive life estate policy needed to be reversed. As of May 15, 2009, the more restrictive life estate policy was rescinded. Accordingly, we now have two diferrent Medicaid rules for life estates, depending on the date that the life estate was created:

* As a general rule, life estates created prior to August 28, 2008, or on or after February 24, 2009, are considered exempt assets.
* Life estates created on or after August 28, 2008, but before February 24, 2009, are treated in the same manner as other real property, subject to any applicable residential real property exclusions as mentioned above.

How Can Life Estates Now Be Used in Medicaid Asset Protection Planning?
Life estates have been used throughout Virginia history for many different purposes – Medicaid asset protection planning, estate planning, probate avoidance, and tax planning.

One asset protection strategy involves a parent purchasing a life estate in the home of a child. This strategy is specifically allowed by Medicaid under current law so long as the parent actually resides in the home for at least a year after the purchase of the life estate.

Another planning strategy involves the sale of real estate to a child, coupled with the retention of a life estate. This allows the parent to effectively sell the home for a discounted value, retain the lifetime right to live in the home, and avoid probate, while also preserving a step-up in basis for capital gains purposes on the death of the parent.

A third planning strategy involves the gift of real estate to a child, coupled with a retained life estate. Although this gift will trigger a period of Medicaid ineligibility if application for Medicaid is made within five years of the transfer, because the value of the remainder interest is lower than the full value of the entire piece of real estate, a gift of a remainder interest results in a shorter Medicaid penalty period than a transfer of the entire house.

A parent retaining a life estate in a home that is being sold or gifted to a child has several advantages:

1) The parent continues to qualify for any property tax exemptions such as senior citizens exemptions that were available prior to the transfer.
2) The parent retains the legal right to live in the property.
3) The parent retains the legal ability to obtain a reverse mortgage (with the agreement of the remainder beneficiary).
4) The child receives a stepped-up basis for capital gains tax purposes.

Life Estate transactions, and the financial and life expectency calculations that must be made in connection with these transactions, are extremely complicated and must be done pursuant to the applicable Medicaid regulations. It is essential that these types of transactions be done under the direct supervision of an experienced Elder Law firm such as the Farr Law Firm.

CCRC Resident Fights Move to Increased Level of Care

Written by Evan Farr

An 88-year-old California widow is challenging an attempt by her continuing care retirement community (CCRC) to move her from her private apartment to an assisted living unit. If she is successful, the outcome could set a legal precedent for more than 5 million Americans living in retirement communities, CCRCs, and assisted living facilities.

In 1991, Sally Herriot and her husband, John, paid a $180,000 non-refundable entrance fee to Channing House, a Palo Alto that offers residents a continuum of care, from independent living to skilled nursing units. As is typical of CCRC contracts, the Herriot’s admission agreement gave Channing House’s administrators the right to determine the appropriate level of care for the couple and the authority to move either of them into an assisted living unit or a skilled nursing facility if and when it determined they needed more care.

Mr. Herriot died in 2005. Last year, Channing House notified Mrs. Herriot — who uses a walker, needs help getting dressed and has problems with her eyes — of their intention to move her from her spacious ninth-floor apartment with a covered balcony to a much smaller, hospital-like assisted-living unit where she would share a room but also be served by a trained nursing staff. Mrs. Herriot resisted, saying that with the help of the round-the-clock private aides she hires herself, she has everything she needs and does not require a higher level of care.

Mrs. Herriot’s attorneys, Michael Allen and Susan Silverstein (who is with AARP), filed a lawsuit alleging that by forcing Mrs. Herriot to move, Channing House is violating anti-discrimination housing and disability laws. Channing House’s executive director, Carl Braginsky, counters that decisions to move residents from one level of care to another are made only after careful consideration and consultation with medical staff. Paul Gordon, one of Channing House’s attorneys, rejected as “insulting and misleading” Mrs. Herriot’s attorneys’ assertions that such decisions are motivated by the opportunity for financial gain, such as from the sale of Mrs. Herriot’s now greatly-appreciated apartment.

The result of the case could have lasting repercussions on how America’s burgeoning population of seniors is allowed to age. “If Sally Herriot can be forced to move, then it undermines the whole concept of aging in place,” her attorney Michael Allen told the San Francisco Chronicle.

Lawyers on both sides are scheduled to begin mediation in April, and considering that CCRCs are in the business of marketing peace of mind, Channing House may have additional incentives to avoid a trial.