Studies predict that approximately 40% (2 out of every 5) of Americans reaching age 65 will need some type of long-term care (LTC). Some of us would prefer to stay at home, no matter what the cost. However, without proper planning, the lack of available services and the staggering price tag for full-time home health care may leave us without that option.
Medicare - Don’t Count on It for Long-Term Care
Many seniors think that Medicare will pay for LTC if they need it. That is simply not true. Medicare coverage is limited to: qualified medical expenses (80% of an approved amount for doctors, surgical services, etc.); hospitalization for 90 days per benefit period with a total deductible of $1,024.00 for the first 60 days and a co-payment of $256.00 per day for the remaining 30 days, and an additional one-time, lifetime benefit of 60 days of hospitalization, with a co-payment of $512.00 per day (for a maximum of 150 days). Medicare only pays for a limited period of “skilled” nursing home care that begins within 30 days following a hospital stay of at least 3 days. The maximum period is 100 days per benefit period.
“Skilled” care is that provided under the supervision of a doctor that requires the services of skilled professionals, such as physical therapists or registered nurses. Medicare never pays for any “custodial care,” which is basic personal care and other maintenance-level services. If the patient is eligible, Medicare will pay 100% of the costs for up to 20 days of skilled nursing home care. If the patient is eligible, from day 21 through day 100, the patient has a $128.00 per day co-payment. If a patient stops needing skilled nursing home care, the patient ceases to be eligible and Medicare stops paying. Home health care may be available in limited amounts, but only if “medically necessary.”
For all Medicare benefits there are deductibles and co-payments, which can be substantial. Lifetime limits can be reached in the case of catastrophic illness. Plus, as the cost of Medicare rises, so does the pressure on the government to make it “means tested” instead of a universal program. There are excellent private “Medigap” insurance policies available to cover the gap between Medicare coverage and actual cost.
Self-Insuring LTC Costs
Self-insuring for possible LTC expenses requires a close collaboration of financial, estate and tax planning professionals to ensure that there are sufficient assets available to cover possible costs for as long as needed. The collaboration requires a comprehensive look at your overall financial condition, as well as a thorough understanding of your health and your wishes regarding care in the event of your incapacity.
Most of us will not be able to fully self-insure for LTC, given the current and projected costs of LTC. Those who cannot but are insurable and can afford the premiums should integrate a LTC policy into their comprehensive wealth plan. Doing so can obviate the need for Medicaid planning later.
LTC Advanced Planning Strategies
If total LTC self and/or third-party insurance are not options, other options may be considered.
The Medicaid Trust
One currently-effective planning technique is to transfer assets into a “Medicaid” trust. In a Medicaid trust, the trust maker retains the right to all of the trust income for life while irrevocably giving up the right to receive or benefit from any of the trust principal. The assets in the trust are not available to pay for the cost of the trust maker’s LTC.
By using a Medicaid trust, a senior can preserve capital and still qualify for Medicaid, but only after expiration of the look-back period for the transfer to the trust (which can be as much as 60 months (5 years)).
A Medicaid trust can allow the trustee to distribute principal during the trust maker’s lifetime for the benefit of the trust maker’s spouse, children, or other designated beneficiaries, just not to or for the benefit of the trust maker. Many trust makers choose to maintain the right (called a Special Power of Appointment) to change the current or ultimate beneficiaries of the Medicaid trust by “reappointing” the assets to different family members at a later date.
If a Medicaid trust is not desired, it is still possible to make “outright” gifts of property, wait until the look-back period expires, and then apply for Medicaid or use other planning techniques to qualify for Medicaid at the earliest possible date.
Protecting the Home
If the home is the only asset to protect, a deed to children or others with a retained life estate for you will protect both the property and your Medicaid eligibility upon expiration of either 60 months from the date of the conveyance or the applicable “penalty period.” As with other advanced planning strategies, because the penalty period begins only after the applicant has applied for Medicaid and is otherwise eligible, you must have other LTC funding available to get past the look-back period, or someone willing and able to pick up the LTC costs during the penalty period.
Crisis LTC Planning
Even if the need for LTC is imminent or immediate, sophisticated Medicaid planning opportunities can be employed to protect a substantial portion of your assets. Carefully working within the Medicaid transfer rules can allow you to provide security for yourself and a legacy to your family, while ensuring that you will remain eligible to receive LTC under Medicaid when necessary. For example, by combining the gifting of assets with the structuring of other asset transfers as an exchange for a secured interest (much like a loan) through the use of a promissory note, private annuity, or Grantor Retained Annuity Trust (GRAT), you can pay for expenses during the waiting period that begins upon making the gifts. This allows you to channel assets to a trust, or to children and grandchildren, while receiving sufficient income through the note or annuity payments to pay for your care until you become Medicaid eligible. If you can live at home with the assistance of home health care, you can transfer assets and qualify for Medicaid immediately to cover home care costs in some jurisdictions. The planning team must exercise caution, however, because home health care may be appropriate initially, but if your condition deteriorates to the point where you cannot safely stay at home, nursing home placement may be required. If you require this higher level of LTC, you must file a new application, and the Medicaid transfer rules will then apply. Thus, when planning for home care, you and your planning team must evaluate the possible need for institutional LTC services before making transfers.
Counseling clients on their LTC options, including the availability of LTC insurance, is an integral part of Forbush Legal Office’s comprehensive wealth planning. By working together, we can ensure that assets are available as needed to meet your unique LTC planning goals and objectives.