Worried About Affording Long-Term Care in the Future?
Now is the Time to Begin Medi-Cal Planning
Ask any Baby Boomer or senior citizen what they envision in the next ten years, and you will not hear things like “suffer a stroke,” “get diagnosed with Alzheimer’s,” “fall on a wet floor and break my hip.” We all have dreams of a long and healthy life, but for many, destiny does not cooperate.
- A woman in her sixties has a one in six chance of developing Alzheimer’s
- Each year more than 795,000 people in the United States suffer a stroke.
- One out of three adults over the age of 65 experiences a fall each year.
It may be hard to imagine, but a majority of seniors will need some sort of outside assistance within their lifetime, whether that means visits from a home health aide, moving into a senior living facility, or the 24/7 supervision provided by a nursing home.
For some, this scenario may not be hard to imagine at all. Perhaps you, or a loved one, have recently received a diagnosis for Alzheimer’s, Parkinson’s, or COPD. Or it could be that you have recently lost one parent and worry about the surviving parent living on his or her own.
Long-Term Care Is Expensive
Wherever you are in your life, it is important to recognize that long-term care is expensive. If you are not prepared when life throws that curveball your way, you could lose your retirement savings or even your home to the costs of long-term care.
- Average yearly cost of a full-time (44 hours per week) home health aide in California: $52,624 (Genworth)
- Average yearly cost of an assisted living facility in California: $45,000 (Genworth)
- Average yearly cost of a semi-private nursing home care room in California: $86,815 (Genworth)
How to Pay for Long-Term Care
How will you pay for these extraordinary expenses if you, a spouse, or an aging parent should need long-term care? There are three primary ways to cover the cost of long-term care:
- Long-term care insurance
- Paying out of pocket
- Medi-Cal coverage
Long-Term Care Insurance
You may have heard of long-term care insurance, a type of insurance that will provide some coverage in the event that you require nursing home care or in-home care. Long-term care insurance can be extremely useful when it comes to offsetting the costs of long-term care, but it is rarely a complete solution.
Every long-term care policy is different, and the coverage may vary. Most policies pay out a maximum per diem for a set number of years. Unfortunately, even the best policies often come up short and force policyholders to pay the difference out of pocket. For instance, it is not unusual to see a policy pay out a monthly maximum of $3,000 in coverage. This is a good start, but if your nursing home bill is $7,500 per month, you will still need to come up with $4,500 each month.
Another drawback of long-term care insurance is that premiums can be very expensive, especially for seniors on a fixed income. If you are already sick or above a certain age, it can be nearly impossible to qualify for a policy.
Out Of Pocket
Seniors with inadequate long-term care insurance or who do not have any long-term insurance at all often assume that they will have to pay for long-term care out of pocket. Month by month they withdraw money from their retirement accounts until their nest egg disappears. Next, they may begin selling possessions. They may even consider selling their home or taking out a reverse mortgage just to pay for nursing home bills.
Think about what this means. You have spent your whole life working hard, saving for retirement, and building a legacy to pass onto your family after you are gone. Now, that legacy is swirling down the drain to pay for your care bills. What will be left? What happens when the money runs out?
Unfortunately, many seniors do become impoverished after spending all their savings on long-term care. When a senior has only $2,000 left to their name, they will qualify for Medi-Cal coverage. Medi-Cal is a joint insurance program funded by the federal government and the state of California. (Medi-Cal is called Medicaid in every state except California).
What most seniors do not realize is that with a little bit of planning and some expert legal help, they could have qualified for Medi-Cal without losing their life’s savings. Elder law attorneys, like myself, provide our clients with Medi-Cal Planning services. We work within the existing Medi-Cal qualification rules to help structure our clients’ assets in a manner that allows them to qualify for Medi-Cal without waiting until they only have $2,000 left to their name. We do things like convert “Countable Assets” to “Excluded Assets” or moving homes and investments into something called a Medi-Cal Asset Protection Trust.
All of these tactics are legal and ethical, but they take time. The sooner you begin your Medi-Cal planning, the more your elder law attorney can help position your estate. This is especially true now, because California will soon be adopting even tighter Medi-Cal qualification regulations. If you wait to start your planning, you could find that it is more difficult and will take longer to shift your assets out of Medi-Cal’s grasp.
Medicaid Asset Protection Trust
Long-term care insurance is the preferred option for protecting assets from nursing home costs, since it helps keep clients out of the nursing home – by paying for home care. Many clients over the years who were forced to spend their final days in a facility simply because they ran out of money to pay for home health aides. Additionally, for married couples, the home care option may protect the spouse from compromising their own health and finances with heavy burden of caregiving in their later years.
When the client is turned down for long-term care insurance, or is unable to afford the premium, the next best option is the Medicaid Asset Protection Trust (MAPT). Making assets joint with adult children offers no protection since Medicaid considers all of the jointly held assets to be available for the care of the ill parent, except to the extent the child can prove the amount of their actual contribution. Additionally, outright transfers to children are generally inadvisable since those assets then become exposed to the children’s debts and liabilities, divorces, etc. In addition, some children spend the money, refuse to give it back when needed or die before the parent and pass those assets on to their heirs. Once exception to the inadvisability of outright transfers to children is when nursing facility care is imminent or at least foreseeable. In such case, the assistance of an elder law attorney is essential since the amounts to be transferred, the order of assets transferred and where to transfer the assets all require the advice of counsel. The object here would be to protect as much of the assets as possible and to qualify for Medicaid benefits at the earliest possible moment. If someone is just getting older, cannot or will not get long-term care insurance and want to plan ahead to protect their assets, the best option is to set up a Medicaid Asset Protection Trust.
Known as the “income only” trust, the MAPT names someone other than you or your spouse as the trustee, usually one or more adult children, and limits you to the income. The principal must be unavailable in order or it to be protected. These trusts are ideal for the family home as well as for assets the client is only taking the income from or is simply reinvesting. The client’s lifestyle is not generally affected since they continue to receive their pension and Social Security check directly, they keep the exclusive right to use and occupy the home and they preserve all the tax exemptions on the home. The trust may sell and trade assets through the trustee. Nevertheless, the parent retains some measure of control by reserving the right to change the trustee in the event of dissatisfaction for any reason.
The Medicaid Asset Protection Trust is also flexible. You may sell the home, the money is paid to the trust, and the trust may buy a condominium, for example, in the name of the trust so it is still protected. The trust may buy and sell and trade stocks and other assets. IRA’s and other qualified plans stay out of the trust since the principal of all such retirement plans are exempt from Medicaid. These types of assets avoid probate as they go directly to the designated beneficiaries at death.
Contact the Law Offices of Justin M. Gilbert today to begin Medi-Cal planning today.