Or, Protecting Your Assets From the Nursing Home
As people are living longer, more and more of you or a loved one may end up in that place where we all swear we will never go, the nursing home. As much as you would like to ignore it, defy it, or refuse to believe it could happen to you or your loved one, there is a reasonable chance that you or your loved one may need the services of a skilled nursing facility. For some, it may only be a place for short term rehabilitation after a hospital stay. For others, as we age, we have chronic health issues that cannot be reasonably managed at home, either financially or medically, so it could be for long term care.
For long term care can take place in your home, at adult day care center, in an assisted living facility, or in a nursing home, or some combination of these. Most long term care takes place at home by an uncompensated family member. Even with the best of intentions, often, that can only last so long. As for adult day care and assisted living, there little or no government assistance, so it will come out of your pocket. So, this article will focus on what happens if you need long term care in a nursing home: how to pay for it and how to protect your assets in the event that does happen.
According to a 2018 survey by Genworth, the average cost of a semi-private room at a nursing home in the Charlotte area was nearly $7,000 per month, and costs are rising.
How to Pay for Long Term Care
Most people are surprised to learn that Medicare and health insurance does not cover long term care in a nursing home. Medicare and health insurance does include limited coverage for nursing home stays that are for rehabilitation purposes after a hospital stay; they do not provide coverage for ongoing, chronic conditions such as where you require maintenance and assistance with activities of daily living, or supervision due to a cognitive impairment, and you are not expected to make improvement. So how do you pay for long term care that you may need in a nursing home?
Private Pay: You can use your own funds or your family’s funds. This is how most people start out paying for the nursing home, at least until they run out of assets. As you can see, for most people, it would not take long to go through your lifetime savings. Also, if you have a spouse at home, this could leave him or her impoverished.
Long Term Care Insurance: Private long term care insurance provides a source of funds to pay for your care. It can be a significant part of your plan to pay for long term care. Long term care insurance can be useful even if you use it to insure on a portion of the cost of your care. For some people who may have or think they may have sufficient resources to be “self-insured,” long term care insurance could be a way to help offset some of the costs, thereby avoiding or postponing the need to sell assets to cover your cost of long term care. Most long term care policies will cover expenses for your care at home, in an assisted living facility, and in a nursing home. Long term care policies have many variables in terms of when coverage begins, how much it pays and for how long, whether it is combined with life insurance, and more, all of which affect the cost of the premiums. Your age and health also affect the cost. This type of insurance may or may not be appropriate for you. For these reasons, you should consult with your financial advisor and an insurance agent that is experienced in long term care insurance policies if you are going to consider such a policy.
Medicaid: Medicaid is a combined federal and state funded program administered by each state to help low-income individuals with medical expenses. Most people use up the majority of their assets to pay for their nursing home expenses, then they qualify for Medicaid. About 65% of nursing home residents are supported primarily by Medicaid.
Planning to Protect Your Assets
Asset protection and Medicaid planning usually includes normal estate planning type documents, such as wills, powers of attorney and trusts, in this situation, those documents are designed with the additional goal of protecting your assets from the nursing home. With proper planning, you may be able to protect a substantial portion of your assets from the nursing home. Generally, to qualify for Medicaid to pay your nursing home expenses you must “spend down” your countable assets to $2,000. Most of your assets are considered “countable” for this purpose. Further, if you are married, Medicaid looks at all of the assets of the couple, no matter in whose name they are titled, or even if you have a prenuptial agreement. They will allow the spouse at home to retain a portion of the couple’s assets, but for most folks, it still leaves the spouse at home in a dire situation.
A few types of assets are not countable, meaning that if you owned them, they would not prevent you from qualifying for Medicaid. Having said that, some of those non-countable assets, including your home, will be subject to estate recovery by Medicaid after your death to repay the government for the amounts paid on your behalf. The idea of Medicaid planning is to arrange your assets or spend your assets in a way that is more favorable to you and your family and be able to qualify for Medicaid sooner that you otherwise would, without having your non-countable assets used to repay Medicaid after your death. There are two ways to plan, crisis planning and advance planning.
Crisis Planning. As the name implies, this type of planning takes place when your situation has reached a crisis. Namely, you are already in the nursing home or you admission to the nursing home is imminent or in the foreseeable future. With crisis planning, there are fewer options to protect your assets. Having said that, if you have a power of attorney with the right language, there are likely to be ways to protect at least some of your assets. Remember, you must have signed your power of attorney while you were still of sound mind.
Advanced Planning: Like most things in life, the further in advance you plan for something, the more successful you are likely to be. So it is with Medicaid planning. Generally, you can protect more of your assets if you plan in advance, rather than waiting until there is a crisis. One way to protect your assets from the nursing home is to transfer your assets, or at least some of them, out of your name before you need to enter a nursing home. It hardly seems fair to be able to give away your assets the day before you go to the nursing home in order to qualify for Medicaid. So, the Medicaid rules specify that if you transfer your assets without receiving fair consideration within five years before you apply for Medicaid, Medicaid will look at those assets as if you still own them, thereby disqualifying you for Medicaid for a period of time which is based on the value of the assets that you gave away. In other words, Medicaid will look back five years to see what you may have given away. So advance planning means that you must take this five-year lookback period into account. Now if you want to take advantage of advance planning by getting assets out of your name, there are better ways to do that using a special type of irrevocable trust.
Because this is a very complex area, and the rules are subject to change, it is important to seek the assistance of at attorney well-versed in elder law and asset protection planning.