Combating the Rising Costs of Long-Term Care
June 2009
One of the greatest challenges many Americans face is how to protect their
families from the rising costs of long-term care (or nursing home care), both
for their elderly parents and for themselves when they reach retirement age.
For example, the average cost of staying in a nursing home is between $5,000 to
$6,500 per month, or about $60,000 to $78,000 per year. Since the average length
of stay in a nursing home is three years, this quickly totals nearly a quarter
of a million dollars. A family with a loved one in a nursing home would need
about $3 million in income-producing assets to avoid drawing on the principal.
That's why it's important to start strategizing now to determine how you plan to
pay for long-term care.
Three Ways to Pay
Typically, there are three ways to pay for long-term care:
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Self Pay: Under this method, you pay for long-term care expenses out of pocket.
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Long-Term Care Insurance: This is essentially a wager between you and an
insurance company. In paying the premiums, you are betting that you will
eventually need nursing home care. The insurance company is betting that you
won't need the coverage and that it can keep all the premiums.
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Medicaid: This government entitlement program assists low-income seniors who
need nursing care. However, medical costs have risen so dramatically that even
middle-class patients can't afford to pay. About 7 out of 10 nursing home
patients receive Medicaid benefits.
Consider an Asset Protection Trust
If you choose Option 1 or 2, you should be working with a financial planner or
other investment professional to maximize the growth in value of your
investments and to insulate your assets from creditors and lawsuits through
trusts or other pre-planning tools.
You can place assets into a customized trust that works as an asset protection
trust. This type of trust can be used in many situations to help pre-qualify you
for Medicaid and, at the same time, protect what you own. You can receive income
from assets in the trust and also have a legal "back door" to the principal if
you ever need it.
Not Poor, Not Rich
If you are more likely to choose Option 3, then you should understand how
Medicaid eligibility works. The rules are strict, but they are not impossible to
meet.
Income is an issue. This varies from state to state, but typically the limit is
about $2,000 per month. In addition, Medicaid reviews an applicant's financial
records for the five years prior to their application. The government searches
for uncompensated transfers, such as money or assets given away for free.
What if you earn $2,500 per month or $3,500 or $4,500? These amounts are not
enough to pay for care, but they will generally disqualify you from eligibility.
There are strategies that can help persons who earn "too much income" to qualify
for Medicaid. Those strategies include a Qualified Income Trust or a Miller
Trust.
There are a variety of tools available for pre-planning to cover the costs of
long-term care. To start the process of exploring your options, contact your
financial planner or estate planning attorney.
Adapted from the Daily Plan-It newsletter. Hoopes,
Adams & Alexander, PLC, is a Chandler, Arizona, law firm offering services to
Phoenix-area clients in the areas of estate planning, entity formation,
commercial and real estate transactions, and civil litigation. |
