The Elder Forum

The Elder Forum
Insure Mother's Life

Attention kids, ages 30 to 50! This year consider buying yourselves a very special gift, one that is guaranteed to yield a return at some imprecise time in the future: insurance on the lives of your parents.

Such a purchase may avoid the concern expressed by a senior legal helpline caller. "I am 80," she said. "I have a whole life insurance policy I took out 25 years ago. It has a death benefit of $100,000 and presently a cash value of about $70,000.

"If I go to a nursing home, will I be forced to surrender the policy and use its proceeds to pay the home before I become eligible for Medicaid assistance? I have been religiously paying the premiums so I could leave something to my two daughters."

I informed her she would be required to spend down all of her assets to a $2,000 level before being eligible for Medicaid.

"That includes the cash value of your life insurance policy. If you own it, they want it," I advised.

But what if she doesn't own it? What if she were to transfer ownership of the policy to her daughters, with the understanding that they pay the premiums for the remainder of her life?

Medicaid would treat the transaction as a transfer of assets subject to its three-year look-back rule. Thus, if she transferred the policy this month, it would be the transfer of $70,000 without consideration, subjecting the transfer to a penalty period if she were to apply for Medicaid prior to October of 2008.

After that date, her daughters could maintain the policy for the remainder of the caller's life, obtain loans on its cash value, and collect a death benefit upon their mother's demise.

It's perfectly legal. Her daughters can be both the owners and the beneficiaries of the policy.

The law prohibits a person from buying insurance on the life of another person, unless the buyer has an "insurable interest" in the other person's life. The concern is that the person who is both the owner and beneficiary of a life policy may have an incentive to bring about the event that will trigger the death benefit.

In this case, however, the daughters have an "insurable interest" in relationship to their mother. They should become owners of the policy and begin counting � to 36.

(Pro bono legal information and advice is available to persons 55 and older at USD Senior Legal Helpline, 1-800-747-1895; mmyers@usd.edu)

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