LONG TERM CARE IS EXPENSIVE
Long-term care isn't simply dependent care provided at home or in a facility, it takes a financial toll that can often bankrupt families if you don't plan properly. Today, 1 in 4 adults over the age of 70 will be diagnosed with some form of dementia or alzheimer's disease, and, of those, more than half will require some form of long-term care. We all have had some experience either directly or indirectly with caring for someone with this debilitating illness and the financial and emotional cost it creates.
Long-term care can be very expensive, whether you receive care at home, or in a facility receiving 24 hour care. Those who don't plan for this possibility, are often compelled to spend-down all they have until the time that medicaid begins to cover the costs. The average cost of a nursing home coverage in New York City is about $14,000.00 per month.
If you've worked a lifetime to build a nest egg for your retirement, or you want to a leave a legacy for your children and grandchildren, poor planning will see it all disappear - leaving nothing for your family. That is why many people turn to medicaid planning in order to protect their lifetime of hardwork from the high cost of getting sick.
Medicaid rules require that recipients have few "countable" assets and limited income. Any excess assets need to be spent down before you can qualify for Medicaid. In addition, in order to be eligible for Medicaid, you cannot have recently transferred assets. If you transfer assets within five years of applying for Medicaid, you may be subject to a penalty period during which you cannot receive benefits. After you die, Medicaid also has the right to recover from your estate, which in the case of a Medicaid recipient usually means only the house.
The best way to protect what you've spent a lifetime making, is to plan ahead. With prudent planning, you can shield your assets, and get qualified for medicaid. The following are some tools that can be d in an estate plan to prepare for Medicaid:
- Trusts. In all likelihood, the best tool you can use is an "irrevocable" trust (or a "Medicaid Asset Protection Trust")-- a trust that cannot be changed after it has been created. In most cases, this type of trust is drafted so that the income is payable to you (the person establishing the trust, called the "grantor") for life, and the principal cannot be applied to benefit you or your spouse. At your death the principal is paid to the people you name in your trust. This way, the assets that are in the trust are protected and you can use the income for your living expenses. For Medicaid purposes, the principal in such trusts is not counted as a resource, provided the trustee cannot pay it to you or your spouse for either of your benefits. However, if you do move to a nursing home, the trust income will have to go to the nursing home. So what is the catch? Medicaid’s “look-back period,” In order to protect the assets, the trust must be funded at least five years before applying for benefits. For more information on how to use trusts in Medicaid planning, click here.
- Annuities. Annuities are another tool married couples can use to prepare for Medicaid. An immediate annuity, in its simplest form, is a contract with an insurance company under which the policyholder pays a certain lump sum of money to the insurer and the insurer sends the policyholder a monthly check for the rest of his or her life. In most states the purchase of an annuity is not considered to be a transfer for purposes of eligibility for Medicaid, but is instead the purchase of an investment. It transforms otherwise countable assets into a non-countable income stream. As long as the income is in the name of the spouse who is not in the nursing home, it's considered non-countable. For single individuals, annuities are less useful, but if you transfer assets, you may be able to use an annuity to pay for long-term care during the Medicaid penalty period that results from the transfer. Taking an account, for example an IRA that isn't in mandatory payout status, and converting it to an annuity, removes the asset from consideration, but will result in it ultimately being spent on your care.
- Protecting your home. After a Medicaid recipient dies, the state is required to attempt to recover from her estate whatever benefits it paid for the recipient's care. This is called "estate recovery." For most Medicaid recipients, their house is the only asset available, but there are steps you can take to protect your home. Putting your house in a trust can be a good option, but once a house is placed in an irrevocable trust, you cannot remove it. Another option is a life estate, which is a form of joint ownership of property between two or more people. They each have an ownership interest in the property, but for different periods of time. The person holding the life estate possesses the property currently and for the rest of his or her life. The other owner has a current ownership interest but cannot take possession until the end of the life estate, which occurs at the death of the life estate holder. Unless you plan properly, the risks of estate recovery are great.
Putting together a nest egg takes years of hard work, sacrifice, and decisions. Failing to consider what could happen if you or your spouse get sick and need long term care can be the most costly mistake of your lifetime. Consider your potential needs, the costs of long-term care, and balance that with the relative cost of planning.