Most people don’t think about how they’re going to pay for long-term care until they get to 1 or 2 points of their life.
- When their parents get older and they start wondering how they’re going to afford the cost of long-term care nursing homes, assisted living, in-home health aids, or
- When they themselves start to get up in age and they wonder how they are going to be able to afford the high cost of elder care.
Did you know that someone turning 65 years old today has about a 70% chance of needing long-term care services at some point for the remainder of their life?
And on average, women need about four years of long-term care, and men need about two years – at an average cost of around $100,000 per year, depending on where you live.
It’s clear that the price of long-term care can be out of reach for many families. We hear from a lot of clients who are in their 60’s or 70’s and have not really started to think about how they’re going to be able to put their money together in order to pay for long-term care. Ultimately, there are really three options that the average family has to afford long-term care.
Option #1 – Pay Out-of-Pocket
The first option that people have to pay for long-term care expenses is the simplest one, which is self-insurance. Pay this stuff out of pocket. Now, as we’ve talked about, given that it can cost upwards of a hundred thousand dollars a year to afford something like assisted living or a nursing home – and a lot of folks are in these facilities for two, three, or four years – we’re talking about a significant chunk of change for someone to have to pay for that long a period of time and that amount out of their own pocket.
So this option, paying for long-term care expenses out of whatever assets you have, is generally only available for the wealthy. Generally, people that have an estate valued somewhere between maybe $1.5 -$3 million. Once you get into that range, it doesn’t hit you as hard to have to spend upwards of $200,000-$400,000 for long-term care services before you pass away.
Option #2 – Long Term Care Insurance
The second option that folks have to pay for long-term care expenses if they don’t have enough cash out of pocket. A lot of people prefer to buy long-term care insurance policies. There are a lot of nice aspects to this. Number one, you don’t have to dip substantially into your assets to pay completely out of pocket. Number two – because you’re still counting as a private pay patient – often times you can still get into some of the nicer facilities. The downside is that long term care insurance policies are pretty expensive. So, depending on how healthy you are, how old you are, whether you’re a man or a woman, you can expect to pay somewhere between $1,500 to $3,000 or maybe even $4,000 per year for an insurance policy. Now, the ideal time to buy one of these plans is between probably the ages of somewhere like 45 to 55. If you are already in your sixties or seventies, buying a long-term care insurance policy is probably not an option for you because most insurance companies are going to turn you down. And so if you can’t pay out of pocket and you are either too old or too sick to pay for a long-term care insurance policy, you’re really going to be down to option number three.
Option #3 – Medicaid
The third way that folks can pay for their long-term care expenses is through Medicaid. A lot of people reasonably – but incorrectly – believe that Medicare will pay for their long-term care expenses. That’s not generally true. Medicare (the health insurance program that people generally get on when they turn 65, 66, 67) will pay for short, short term long-term care stays in a nursing home, for example, if you just had a surgery or procedure, but they will not pay for long-term care expenses and services and nursing home costs in a long term way. For that, you have to turn to Medicaid, which is a means-tested government benefit program that will pay nursing home expenses for people who are basically impoverished. The income and asset thresholds that you have to be under to qualify for Medicaid to pay for your nursing home expenses are extremely low.
When I tell people how low they are, oftentimes they’re shocked. Basically, you have to have very little income. It differs by state, but usually it’s not more than several hundred dollars a month. And the asset limit (and again, it depends on the state) like here in Maryland, the asset limit for an individual is less than $2,000 of what are called accountable assets. Now, not every asset is accountable, so Medicaid does not include, for example, the value of your home. They don’t include the value of a car, and they don’t include the value of life insurance. And so not every asset you have will count towards that $2,000 threshold, but still, the vast majority of people are not going to be under those levels naturally.
They’re going to have to do what’s called some Medicaid planning. They’re going to have to look into Medicaid spend down options to spend down their assets to a level that’s low enough to qualify for Medicaid. Now, the other tricky thing is just because you have an asset like a home that’s not accountable by Medicaid to make you eligible for Medicaid to pay for your nursing home bills – just because they’re not counting that doesn’t mean they won’t come after your house after you pass away. Medicaid has an asset recovery division – and if they’ve spent, for example $200,000 of expenses on you while you’re alive on your nursing home cost – they will put a claim against your estate after you pass away. This could include even a claim on your house – forcing your loved ones to maybe liquidate the property to sell the house and to give a chunk of the value of the house back to Medicaid to pay them back for what they paid for you during your lifetime.
Now, one natural solution to this problem that comes to people’s mind in terms of qualifying for Medicaid is “Oh, well this is easy. I’ll just put everything in my kid’s name and call it a day and I’ll have nothing in my name. My kids will technically own it. Maybe they can help me out a little bit if I need it, and then Medicaid will still pay.” Well, there’s one big problem with this, which is that Medicaid has what’s called a (5) five year look back window where they will look to see if you have given away any of your stuff or have had any transfers in the last five years. And if you have, you’ll be ineligible for Medicaid from the five years after you gave anything away. For example, let’s say you tried to retitle your house and the name of your daughter in 2020, well, you’re not going to be eligible necessarily until 2025.
There are other downsides to putting assets in your kids’ names such as:
- Capital gains taxes
- If you put an asset in your kids’ names and then a creditor comes and seizes it, that’s not a great situation.
- Sometimes people have falling out with their loved ones. They get in a bad sort of uncomfortable situation with them as they age. So putting assets in their kids’ names could have some blow back in a way that’s not ideal if they end up having a falling out or have a deteriorating relationship with their loved ones.
Irrevocable Trusts or Medicaid Trusts
One option that you should be aware of and should look into is the use of what’s called an irrevocable trust. This is different than the revocable living trust that people use to avoid the probate process, to put assets in an entity’s name instead of their own so their loved ones don’t have to go through probate. That’s a separate issue.
An irrevocable trust is a different kind of trust where you put your assets in there. You surrender any control whatsoever. You can’t revoke the trust, you can’t control the distributions and you’re not your own trustee. You can name your children as a trustee of an irrevocable trust. They would then have sole discretion to determine whether you have access to principle or income from that trust. But the benefit for Medicaid planning purposes is this irrevocable trust, which is sometimes called a Medicaid trust, does not count towards your accountable assets – but it does count as a transfer. So it still triggers the five year penalty window before you can regain that Medicaid eligibility.
And so if any of this stuff is relevant to you – if you’re worried about paying for long-term care expenses, either because maybe you’ve waited too long to purchase insurance, maybe you don’t think that you have enough money cash on hand to pay for the escalating cost of long-term insurance, I would contact an estate planning or elder law elder law attorney who can dig into these options and determine the best course of action for you going forward. It might look like something like before you imminently need to pay to go into a nursing home. It may look like you creating in irrevocable trust, a Medicaid trust, putting your asset assets in that trust, and then in 5, 6, 7, 10 years, you will be eligible for Medicaid – and at that time and your assets will be tucked away such that Medicaid won’t count them towards your eligibility and they won’t come after them after you pass away.
Talk to an Experienced Estate Planning or Elder Law Attorney in Germantown
If any of this triggers an impulse in you that you need to take action to put your estate affairs in order and to make sure you can afford the high cost of long-term care – for either you or your loved ones, contact us at Paré & Associates, LLC (formerly Law Office Of Alice Paré) for a free, no-obligation consultation.