Small Business Planning

I was once told by a terminally ill client that Medicaid is only for the poor. Well, with the average cost of long term nursing home care being at approximately $150,000.00 per year, a nursing home stay could impoverish most families. With the proper planning, the financial picture needs not be so bleak.

Medicaid is a federallyfunded program which provides coverage to individuals who have no more than $3,950.00 in assets. Monthly income in excess of $50.00 will be applied towards the individual’s care in a nursing home. Many times, seeing these numbers, business owners feel all is lost in salvaging their decades of work; but this is not the case. There are options, especially when you consider that the level of care is equivalent whether the person is privately paying or on Medicaid.

1)Transfer to Family Member. A business owner can transfer the business to a family member in the hope of continuing family ownership of the enterprise. The first step is to get a fair market valuation of the business based on accepted valuation principles for the respective enterprise. Once the value is determined, you must determine the length of ineligibility for Medicaid Services. The maximum length of ineligibility for Medicaid covered long term nursing home care for outright transfers is three years (the penalty period). The period is based on the amount of the transfer multiplied by a standard cost of care as determined by the Department of Social Services. For New York City, the current cost of care factor is $8,695.00 per month. In other words, if the business is in excess of $314,000.00, after three years, the former business owner can be Medicaid eligible (assuming all financial eligibility requirements are satisfied at time of application). If the care required is not nursing home care but personal care services, there is no penalty period. Additionally, if the transfer is to a spouse, there is no period of ineligibility. Transfers to spouses, however, have their own concerns such as spousal resource allowances and spousal refusal challenges.

2)Transfer into a Trust. A problem with an outright transfer to a family member is that although you have salvaged the business from a complete liquidation or forced sale, the business owner has lost her source of income. If the primary source of revenues has been from the business, upon the transfer, the income is the new owner’s and there is no guarantee that the new owner will furnish any monies for the benefit of the former owner.This is of particular concern if the individual’s other assets are insufficient to cover the cost of care during the penalty period. One solution to a loss of income is a transfer of the business into a trust. Assuming there is no violation of federal taxinglaw (all planning should be done in concert with all the professional advisors for the individual), the business can be transferred into an irrevocable trust. The trustee can be anyone except the individual or the individual’s spouse (to avoid legal obligation of support arguments) and preferably should be the person who will be running the business. The right to the income is retained by the individual and is available for the person’s care. An appraisal is required as is thedetermination of the penalty period. The downside to this option is that the period of ineligibility is five years for transfers in trust and once the individual is on Medicaid, the income is paid to the facility. The business, however, is protected. If at a later time, the business is sold, the sales proceeds are sheltered from attachment.

3)Sale to a Third Party.If there is no family member to carry on the operation of the business, the business can be sold. With the proceeds from the sale of the business, she can then determine what she plans to do with the proceeds and utilizing one of the above options, can have sufficient funds to provide for long term nursing care while being able to salvage some of the assets during her life.

This is not intended to be an exhaustive discussion of all of the options available. Each person’s specific circumstances can alter the options available. What is the most important thing to recognize is that there are options available and by speaking with qualified professionals, the future need not be bleak.

By: Tracy Christen Reimann, Esq.

19 Myrtle Drive, Mahopac, NY10541

(914) 243-4933