We are close to our seventies and one of our children, after having been gone for twelve years, has decided to come back and farm. We were thinking of giving her and her husband our livestock and machinery to get them started. Our other children – two – agree they want the farm to stay together.
Also, we are considering a life estate with them to protect the property should we need long-term care. What do you think we need to think about?
– Prodigal Daughter
Dear Prodigal Daughter:
The first thing that comes to mind is perhaps you are so happy someone is willing to take over the farm perhaps you are overlooking the simplest thing: what happens if they come back and decide they don’t like it in, say, the next five years? Are you going to like sitting on the sidelines watching your machinery being auctioned off and your cattle sold at the sale barn?
A gift is a gift and without any prior considerations, the person who receives the gift can do whatever they want with this gift – including selling it, losing it is a bad financial decision, or having it go to someone else in death or divorce. It’s their property and you will have absolutely no say over this gift once completed.
When you gift to someone who is married, all kinds of marital laws then come into play regarding this gift as well.
The life estate has become a favored way of passing property to your children. If the deed is out of your name for five years, Medicaid can only use the income or ‘life estate interest’ from the property to determine your eligibility for financial assistance with long-term care costs rather than the value of the land.
But too often people focus on this benefit alone and seldom think about what this gift really means. It’s a one-way street once it’s done and you better consider where this gift is going and under what circumstances the person receiving the gift can keep the gift in its entirety.
From a Medicaid standpoint, in order to qualify for assistance, you have to be deemed indigent by the state – incapable of paying your costs of care.
Most people, if they sat and really thought about it, don’t want to put this burden on their fellow taxpayers. Everybody complains when their land taxes go up, but do they ever think why? Do they know that almost forty percent of the federal and state budget goes to programs like Medicaid?
We’re kind of victims of our own mortality and better general health as we age. If you had a problem, likely there’s been some treatment or cure to either life with the problem or cure the problem. We’ve become so entranced with medical health advances, we actually don’t feel sixty, or sixty-five or seventy. That’s a good thing.
The bad thing is people are no longer preparing for what happens if they do have a disabling injury or condition when they should be. And they should be prepared when they are between sixty and seventy by looking into some type of long-term care insurance.
Many people have a bad taste in their mouths when you mention long-term care. “Yes, my mother had it, paid for it her whole life, and never used it.” Or “My parents had it but when they needed care it was sufficient to pay the costs of care.”
What this tells you is A) in your parent’s generation they believed if they had a need for long-term care it was their problem and not Medicaid’s and B) they did what they could to mitigate those costs to their children and family. They remember the generation before them when there was no Medicaid and many of their parents needed care they couldn’t afford.
Long-term care insurance has gone through many changes just in the past ten years. You can buy asset-based long-term care that guarantees you’ll get your money back fewer claims paid. It also comes with a lifetime guarantee and death benefit higher than your premiums.
For some people, we use this product so the “Prodigal Child” who comes back buys the insurance and if the parents go into a home, he informs his siblings he’ll be taking on much of the costs of care. If they simply die, he has enough assets to buy out the non-farming children. Either way, they’ll be able to show money out of pocket towards the cause of keeping the farm together.