By: Dave Kingsley

Family Trusts and Other Legal Entities Are Major Investors in Skilled Nursing Facilities

There are many ways that vast amounts of wealth are being processed through nursing home financial plumbing for the purpose of shielding it from the IRS and adding value to accumulated capital.  Private equity has become the focus of discussion regarding nursing home ownership and neglect of patient care in in this process. Indeed, the notorious Carlyle Group takeover and bankrupting of HCR ManorCare will have a permanent place in nursing home lore.

    However, exclusive attention on private equity as the cause of shareholder over stakeholder management, distorts reality, which is this:   nursing home ownership is structured for shielding wealth of high net worth individuals (HINWIs – pronounced “hin wees) from taxes while adding value to their assets. Many financial structures are in place for making nursing home ownership a process piping system for avoiding taxes and creating more private wealth with public funds.

    I will be blogging about many forms of entities owning a share of the nursing home business in the United States. This post is about the “family trust.” In an analysis I have undertaken of owners listed by CMS for 344 long-term care facilities in Kansas, I found that 15% of the private, forprofit facilities had a family trust listed in the ownership hierarchy – several in some instances.  In researching NH ownership in various parts of the U.S., I have noticed that family trusts appear frequently as owners (usually indirect owners). 

    These legal entities allow wealthy individuals and families to shield their wealth from taxes and to pass assets tax free to heirs.  They also provide protection from creditors. So, taxpayers are denied their fair share of revenue from businesses they fund while wealth becomes increasingly maldistributed and concentrated in a tiny fraction of the U.S. population.

    As Nicholas Shaxson pointed in the The Finance Curse, transformation to a financialized economy received a boost in the 1970s through state and federal legislation. Legislatures created financial mechanisms such as the LLC for the purpose of tax avoidance, limited liability, and financial secrecy. Indeed, the state of Nevada has been dubbed “The Cayman Islands” of the United States.  It is not uncommon to find many LLCs in the network of operators, shell companies, and real estate incorporated in Nevada (or Delaware).

    In the 1990s, the state of South Dakota became the place to set up a family trust.  In a move to attract business, the state legislature passed laws that provide a haven for super-rich families to hide and protect wealth in a variety of trusts, e.g. “irrevocable family trusts.” However, the wealth sheltered in these trusts will be invested for obvious reasons (e.g., growing assets faster than inflation). So, the nursing home ownership networks frequently include one or more family trusts.

    Although trusts are a major type of investor in skilled nursing home facilities, there are others such as “the family office” (a financial manager for immensely wealthy individuals and their heirs), the Real Estate Investment Trust, and LLCs set up by wealthy individuals for purposes of tax avoidance, opaqueness, and, of course, earning a return on investment. This blog will be shining a light on the financial piping system set up to circulate wealth for tax avoidance and return on investment while frontline care is denied resources for high quality of care.