Careful planning needed for long-term care costs

PRIME September 2012 By Gina M. Barry Bacon Wilson P.C. Special to PRIME Long-term care costs can deplete your assets at an alarming rate. Of all Americans aged 65 or older, approximately 43 percent will enter a nursing home during their lifetime. The average yearly cost of nursing home care is $120,000, and the average stay will last 2 years. To make matters worse, you have probably spent the majority of your life working and building your assets so that your retirement would be well funded, but retirement comes at a time when the possibility of catastrophic illness is more likely. Planning ahead for this possibility can mean the difference between spending your assets to finance any needed care and preserving your assets for your family. Despite popular belief, nursing home care is not paid for by Medicare or by Medicare supplemental insurance. While Medicare may provide benefits for rehabilitation for a short time period, once these benefits end, another source of payment is necessary if the person is not able to go home and must remain a nursing home resident. Medicaid benefits are available to help pay for nursing home care, but only once eligibility requirements, which include strict asset limits, have been met. Changes in Medicaid law that took effect in 2006 have significantly reduced opportunities for last-minute asset protection. While there are still a few options available if you fail to plan ahead, they apply only in very specific situations. The only surefire way to maximize any assets you wish protected for your family is to begin planning at least five years prior to a nursing home admission. A gifting plan is one option if you anticipate at least five years will pass before your admission to a nursing home. MassHealth will look at the five-year period immediately preceding your Medicaid application to determine if you made any gifts. If gifts are found within this time period, a penalty period will be assessed, during which MassHealth will not pay any Medicaid benefits. If at least five years and one day have passed since the date of any gift, under the current rules, the gift will not need to be reported when applying for benefits and no penalty period will be assessed. A gifting plan may consist of outright gifting, usually to your children, or gifting to an irrevocable trust that can continue to provide you with income until you pass away. However, there is danger involved in gifting, as you may be admitted to the nursing home prior to the expiration of the five year period. You must plan for this possibility before beginning any gifting. Gifting may also have serious tax consequences for recipients that should be discussed before proceeding. You might also consider purchasing assets that will not count toward the asset limit for Medicaid benefits. Non-countable assets presently include an irrevocably prepaid funeral, a burial account of no more than $1,500, a car, and in some cases, a home. The payment of outstanding debts, such as a mortgage or credit card balances, can also be beneficial in some cases. If you are presently being cared for by one of your children, you might consider establishing a paid care agreement with that child. You would then pay your child for the care provided to you according to the terms of the agreement. As you pay for care, you would be purchasing the services provided instead of gifting. You would also be benefiting your child by providing your child with additional income. These agreements must be reasonable and fair to you and your caregiving child. Aside from planning to obtain Medicaid benefits, obtaining long-term care insurance can alleviate the potential asset drain and provide increased financial stability. Long-term care insurance will pay for nursing home care according to the benefits purchased. A wide range of policies is available, including unique combinations of benefits and pricing structures. Policies that will also pay for assisted living, home health care expenses and geriatric care management are also available. Some policies are structured so that if the long-term care benefits are not used, the premium may be refunded or a death benefit may be paid. In order to purchase long-term care insurance, you must be insurable, which means you cannot have an existing health condition that would prevent the insurance company from insuring you. The planning strategies mentioned in this article are extremely complex. This article is intended to make you aware of the possible planning opportunities, but a full discussion of the pros and cons of each possibility has not been provided. If you are concerned about protecting assets, it is highly recommended that you seek the advice of an elder law attorney before proceeding. Do so now to avoid paying later. Gina M. Barry is a partner with the law firm of Bacon Wilson, P.C., Attorneys at Law. She is a member of the National Association of Elder Law Attorneys, the Estate Planning Council, and the Western Massachusetts Elder Care Professionals Association. She concentrates her practice in the areas of Estate and Asset Protection Planning, Probate Administration and Litigation, Guardianships, Conservatorships and Residential Real Estate. Gina may be reached at (413) 781-0560 or gbarry@baconwilson.com.