At some point in life, understanding a Miller Trust could be an important part in your decision to continue owning a home or not. To start, homeownership can be viewed in a circular fashion — like a wheel of life. For many of us, our first home-away-from-home was likely a one-bedroom apartment or community dorm room with a roommate. As we made our way through life, the homes got bigger to accommodate a spouse, kids and toys.
However, once the kids leave home, maintaining a larger home and cleaning those extra rooms becomes harder, so we start downsizing. The process can be gradual, as needs change — or it can be sudden, due to a dramatic event. But eventually, we often seem to end where we started — in a small apartment or community housing, such as an assisted-living facility or nursing home.
In working with clients over the years, we've noticed a more deliberate move to downsize instead of staying in a home to the end.
One reason for this shift was people realizing that they might live longer, another 20-30 years after retirement, and would need their money to last. A large home takes time, energy and money to maintain on a continual basis. So selling a larger home in its best condition and while you are still able to manage the maintenance gives you the best return on your investment. As you and the home age, maintenance items slip. Eventually deferred repairs eat away at the potential sales price. This deferred maintenance is one reason for the amount of work required to finalize an estate after the elder's death.
Another reason seniors may delay downsizing is the difficulty in moving away from the familiar. Making new friends, navigating unfamiliar streets and finding new amenities can be hard. Unfortunately, staying put and continuing to accumulate possessions seems easier.
However, downsizing forces you to reassess. Unlike moving into a larger home, downsizing allows you to cut through the collection of possessions you've accumulated over the years. Belongings are categorized into 1) Take to the smaller place; 2) Bequeath to the kids or others; and 3) Recycle as unneeded.
For many, the final "spokes" in the wheel of life can be financially difficult. Assets and income begin to consolidate. Available funds are used to offset the costs of health care and assistance when you can no longer live independently. However, if your income exceeds financial assistance programs, what can you do to make your money last? How does the healthy spouse live if all funds are diverted to the other spouse's care?
One possibility is a Qualifying Income Trust, more commonly known as a Miller Trust. An MT allows someone with high medical and drug needs to potentially qualify for Medicaid assistance even though their monthly income exceeds the Medicaid guideline limits ($2,199). An MT is not for everyone, so consider these positives and negatives.
The positives:
An individual's incomes, not assets, are placed into the MT; the spouse's income remains separate. For many, this could be retirement income and social security checks.
Some of the limited allowable payments from the MT could cover:
– Funds to help the spouse and minor children. If the healthy spouse has limited income, or there are minor children, there are spousal ($2,980.50) and dependent ($993.50 each) allowances.
– Personal needs or living allowance – $1,656 in a private home and $1,395 in an assisted living home.
– Cost of care for the nursing or assisted living home. Other uncovered medical expenses.
Medicaid allows the following income exemptions:
– Up to $119,220 for a Spousal Resource Allowance to prevent impoverishing the healthy spouse.
– Up to $828,000 in home value.
– Up to $750.75 toward monthly housing allowance.
The negatives:
– The Miller Trust is irrevocable, so once established it can only be cancelled by court order or death.
– Upon death, remaining funds go back to Medicaid as a form of reimbursement up to the amount paid in benefits.
– The trustee you appoint becomes responsible for your finances.
– You may need to provide Medicaid with an accounting of expenses.
– There is intense scrutiny to obtain Medicaid eligibility. Medicaid will go back five years into an individual's financial history, so giving away assets can result in fines and penalties.
If the MT is done correctly, Medicaid picks up the balance of the medical expenses until death. An elder law attorney can help you determine if a Miller Trust will work for your specific situation.
Eventually, everyone comes to the final spoke in the wheel life. A little preparation — and knowledge of your options — can help you stretch your financial resources to the end.