One of the greatest challenges our clients face is how to protect their families from the rising cost of long-term care. They’re right to be concerned.
The median cost of a private nursing home room grew to $97,455 a year, an increase of 5.5 percent over 2016, according to the 2017 Cost of Care survey by Genworth. For semi-private rooms, the median cost is $85,775 in 2017, up 4.4 percent over last year.
Since the average length of stay in a nursing home is about three years, such high monthly bills can quickly drain the life savings of a client. 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 for those of you “non-senior aged” clients to start strategizing now to determine how you intend to pay for long-term care in your senior years.
3 Ways to Pay
Typically, there are three choices in how to pay for long-term care:
• The patient pays for the expenses out-of-pocket.
• Long-Term Care Insurance
• Medicaid (MediCal in California)
Medicaid 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 out-of-pocket without wiping out their bank accounts. About 65 percent of nursing home patients receive Medicaid benefits, according to the American Association of Retired Persons.
Consider a Medicaid Asset Protection Trust
For those of you who choose Options 1 or 2, we can show you how to help protect your investments and how to insulate your assets from creditors and lawsuits through pre-planning with trusts.
Some of you may wish to place assets into a customized trust that can be used to help you “pre-qualify” for Medicaid and be protected at the same time. You can receive income from assets in the trust and have a legal “back door” to the principal if you ever need it.
Not Poor, Not Rich Either
If you are more likely to choose Option 3, then you should understand how 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 $2,200 per month. In addition, Medicaid reviews an applicant’s financial records for the five years previous to their application to reveal any uncompensated transfers – 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 will disqualify someone from eligibility.
State by state, there are strategies that can help people with too much income to qualify for Medicaid. Sometimes these are called a Qualified Income Trust or a Miller Trust.
There are a variety of tools available for preplanning to cover the costs of long-term care, and as qualified estate planning advisors we encourage you to act now rather than wait.
If you wish to know more about which asset protection strategies would be best for you as you prepare to pre-plan for long-term care, contact us.
We hope this information is useful to you and helps you and your families. If you have a specific case or a question, please don’t hesitate to call our office.