Protecting
Your Parents Assets From Nursing Home CostsNursing
home care costs have been rising over time, with many older Americans who
require long-term care unable to afford it.With
proper planning, seniors may be able to rely on Medicaid to pay for this care
and still retain some of their assets by exploring several different
strategies.The
aging U.S. population means that more people will likely need nursing home care
in the coming decades. Meanwhile, the cost of nursing home care is increasing
and expected to keep increasing.With
the exorbitant cost of nursing home care, many families worry about depleting
their loved ones life savings to pay for the care they need. Private health
insurance does not cover nursing home care, and while long-term care insurance
is available to cover nursing home costs, these plans are also expensive and
may come up short for long-term stays.This
leaves millions of Americans reliant on Medicaid to pay for nursing home care
a far from perfect solution that usually involves spending down assets to
qualify. With proactive Medicaid planning, though, it is possible for someone
to qualify for Medicaid and still retain some of their assets. The sooner you
start planning, the more options youll have for protecting your parents
assets from nursing home costs. Odds
of Needing Long-Term Care Are HighThe
lifetime likelihood of needing nursing home care is relatively high. About 70
percent of people who turn 65 today will eventually need some type of long-term
care, including nursing home care.About
1.3 million Americans aged 65 and older currently live in nursing homes, and
about 40 percent of todays 65-year-olds will spend some time in a nursing home
before the end of their lives.Women
are more likely than men to need long-term care, and the older a person gets,
the more likely they are to need it. At the same time, there has been a growing
trend of younger adults (those under the age of 65) living in nursing homes, in
part due to Medicaid eligibility expansion under the Affordable Care Act.
Research shows that this group increased from 10.6 percent of total nursing
home residents in 2000 to 16.2 percent in 2017.Medicaid
expansion has led to more people of all ages qualifying for the joint federal
and state health insurance program. Intended as the payer of last resort when
it comes to long-term care, Medicaid has become the primary nursing home
insurance for millions of Americans due to the absence of any other public
program covering long-term care.In
2020, around 6 million Medicaid enrollees used the program to pay for long-term
support and services. Around one in five enrollees received institutional care,
such as care provided at a nursing facility.After
age 65, more than a quarter of adults receive at least 90 days of nursing home
care. Thirteen percent of them receive long-term Medicaid-financed nursing home
care.Medicaid
typically pays for 100 percent of nursing home costs and may be the only
insurance option available for long-term stays. Long-term care insurance can be
purchased, but most policies have limits on the maximum daily or monthly
benefit amount and the total lifetime benefit, as well as terms and health
requirements that may exclude coverage.A
nursing home stay isnt necessarily permanent. About 15 percent to 20 percent
of admissions are for short-term rehabilitation. Among current residents, the
average stay is one year and four months. More than half of residents stay for
at least 100 days, while 15 percent of older adults spend over two years in a
nursing home.With
nursing home costs running $250 to $300 per day in some states, costs can add
up quickly. The average nursing home stay of little over a year, or about 485
days, could end up costing upwards of $150,000.Extrapolate
these costs over multiple years, and they are unsustainable for many families. Medicaid
Planning StrategiesWhether
a nursing home stay lasts months, years, or is permanent, you may have crunched
the numbers and determined that Medicaid is the only feasible payment option
for a parents nursing home care.This
is a good news, bad news scenario. The good news is that its possible for
somebody who doesnt currently meet Medicaids income and asset limits to
spend down their excess assets to meet limits. The bad news is that these
limits are generally only $2,000, which requires significant planning, since
the average net worth of Americans is more than $1 million, including nearly
$1.8 million for those 65 to 74.Another
upside is that not all a persons assets count against the limit. A home, for
example, is typically exempt. Someone can also own one car without exceeding
Medicaids asset limits.Many
Medicaid spend down strategies take advantage of workarounds that allow
nonexempt assets to be converted to exempt assets, thereby excluding them from
Medicaid calculations. But these strategies often involve navigating a tricky
five-year lookback period where past asset transfers are scrutinized to
ensure applicants dont give away assets to qualify for Medicaid.Keeping
these considerations in mind, there are financial planning strategies that can
help to protect a parents assets from nursing home costs and a Medicaid spend
down. Medicaid-Compliant
Annuities (MCAs)MCAs,
a type of single premium immediate annuity, allow countable assets (like cash
or investments) to be converted into a stream of income that doesnt count
toward the Medicaid asset limit. The payout structure must be based on life
expectancy, and once purchased, the annuity cannot be cashed out or changed;
funds in the annuity are no longer accessible as assets.Annuity
income may affect your parents eligibility for other needs-based government
programs, such as Supplemental Security Income (SSI). In addition, the state
Medicaid agency must be the primary beneficiary in case of the annuitants
death during the annuity period. Medicaid
Asset Protection Trusts (MAPTs)Medicaid-compliant
trusts, like MAPTs, hold assets for a set period, after which they transfer to
beneficiaries (usually children or other family members).Assets
in the MAPT are no longer considered part of your parents estate for Medicaid
purposes. They are legally owned by the trust, not your parents, although they
may be able to benefit from these assets, such as remaining in a home
transferred to a MAPT.Creating
a MAPT triggers a penalty period of Medicaid ineligibility under the lookback
period thats based on the value of assets transferred. A MAPT is therefore
most effective when implemented well in advance of potential Medicaid need,
often in conjunction with a parents estate plan. Promissory
NotesA
promissory note is a legal agreement that allows your parents to lend money to
someone (e.g., a family member) who agrees to repay the money with interest
over time. This converts a lump-sum asset into a stream of income.Not
all states recognize promissory notes for Medicaid planning. In states that do
allow them, they may be subject to scrutiny by state Medicaid agencies. The
note must clearly outline the repayment terms and the interest rate must be at
or above the applicable federal rate (the minimum interest rate the IRS allows
for private loans).Interest
income from the loan may be taxed at a lower rate, and the terms can be
customized to meet individual needs. For the Medicaid applicant, however, the
effectiveness of a promissory note is largely dependent on the borrowers
ability and willingness to repay the loan. Life
EstatesA
life estate lets your parents transfer ownership of their home to a child or
other family member while retaining the right to live there for the rest of
their lives. It removes the homes value from their countable assets for
Medicaid purposes and may protect the family home from Medicaid estate
recovery, a program that empowers states to recoup Medicaid expenses from the
deceased beneficiarys estate.Medicaids
lookback policy applies to life estates, so the transfer must be done well in
advance of needing care. Your parents may also lose some control over the
property, and there could be tax implications. Other
Spend Down StrategiesA
spend down strategy might additionally include a parent spending on needs or
wants that can both enhance their quality of life and help them qualify for
Medicaid.Paying
off debts, making necessary home repairs, purchasing a new car, prepaying
funeral expenses, or taking a family vacation are ways to spend down assets and
derive an instant benefit.Gifting
assets to loved ones outside of the lookback period can reduce countable assets
and fit into a gifting while living strategy, but annual and lifetime gift tax
exemptions apply.If
only one spouse needs nursing home care, Medicaid allows the other spouse (the
community spouse) to retain a certain amount of income and assets.Because
state Medicaid laws and individual nursing home care needs vary, there is no
one-size-fits-all strategy for protecting a parents assets from nursing home
costs and a Medicaid spend down. To develop a personalized plan that avoids
penalties or disqualification from Medicaid in your state and also maximizes
asset protection, consult with Ashley Day.
Phone: 251-277-3377.