Four Strategies to Avoid Going Broke in a Nursing Home
by Dan A. Baron, Baron Law LLC
Developing strategies to safeguard assets that you’ve spent a lifetime trying to build is a large part of our legal practice. It’s not surprising since in Ohio the average cost of nursing home care is between $6,800 and $9,450 per-month! And while it may seem unlikely that you will need long-term care, current data from the AARP notes that a single individual at age 65 has a 60 percent chance of needing long-term care. If married, that percentage jumps to a 90 percent probability that at least one spouse will need some form of long-term care in their lifetime. Here are a few questions and solutions that we often address with everyday clients.
Frequently Asked Questions Regarding Cost of Care:
Q: How much of my assets am I allowed to keep as a single individual?
A: A single individual has an asset resource allowance of $2000.
Q: How much would I spend on care if I’m married?
A: For the year 2020, married couples would spend their joint savings until it depletes to $128,640.
Q: What assets are counted in terms of a Medicaid lien?
A: All assets: bank accounts, retirement accounts, savings, house, and even the coin collection. Example: If a married couple has $500,000 in savings and a home worth $250,000, the couple will spend $371,360 ($500,000 – $128,640 = $371,360) on nursing home expenses before government assistance is available. Medicaid may also attach their interest in the house as it is administered through the probate court.
Q: Are my assets protected immediately if I created a trust?
A: No, an irrevocable trust may protect assets if the assets remain in trust for five years.
Q: How much of my income is spent on a nursing home?
A: You may keep $50 per-month as a single individual.
Solutions
Overall, there is no one answer or solution that will prevent your family from spending at least something on nursing home care. However, prudent planning through one or more of these four strategies may save a family from losing everything, or at least a substantial portion of their retirement and savings.
- Preservation Asset Protection Trust
A trust is one tool that can protect assets from being spent on a nursing home through shielding the asset in the trust itself. The most common asset placed in this type of trust is your personal residence. Additionally, other assets such as savings, checking, brokerage accounts, and other assets can be placed in the trust that may limit the amount spent on nursing home care.
In order to take advantage of Preservation Trust protection, two things must happen. First, the trust must be created (and funded) at least five years in advance of applying for federal assistance (aka Medicaid). This is known as the “lookback period.” Secondly, circumventing the five-year look back rule, the person must actually apply for federal assistance. When the applicant submits the paperwork, since the house and other assets are in the trust name and not in their personal name, the assets are not counted for Medicaid purposes. Success achieved!
- Hybrid – Long-Term Care Insurance
With the cost of traditional LTC policies skyrocketing, the insurance market has shifted to hybrid policies that offer a variety of options usually involving a death benefit with a long-term care rider. Here are a couple examples:
Life and Long-Term Care Hybrid
This type of plan offers life insurance and will pay for long-term care during your lifetime if you need it. If you don’t use your long-term care benefits, it will pay a life insurance death benefit to your beneficiary upon your death. However, if you needed long-term care, you would be able to draw down or accelerate the death benefit amount to pay for your care, subject to a monthly maximum amount.
Annuity Based Hybrid
Annuity based hybrid plans offer long-term care insurance at a multiple of the initial investment amount. The investment grows tax-free at a fixed rate of return, and, if used for long-term care expenses, gains will be received income tax-free. However, today’s low-interest-rate environment has made it challenging for insurers to provide annuities with long-term care coverage. Talk with your insurance carrier to learn more.
- Veterans Asset Protection Trust
The Veterans Administration (VA) has an underused pension benefit called Aid and Attendance that provides money to those who need assistance performing everyday tasks. This assistance is available both for veterans and the surviving spouse of a veteran. In some cases, even veterans whose income is above the legal limit for a VA pension may qualify. Similar to the Preservation Asset Protection Trust, a “Veterans Asset Protection Trust,” or “VAPT” offers the same type of protection and expedites VA benefits.
- Caregiver Agreement
We know that the current standard lookback period is five years. Children who move in with mom or dad to provide care could reduce the lookback period to two years with a properly executed caregiver agreement. Proper documentation is also required that would show the child is actively assisting mom or dad with care; however, the documentation stems from the caregiver agreement itself.
While the need for care and the provided solutions may seem overwhelming, speaking with a member of our firm about providing for your loved ones shouldn’t be. You know your family and the assets you want to protect; we know the law. Together, we can merge our areas of expertise to create a plan that works best for your family. Contact us at 216-573-3723 or email at dan@baronlawcleveland.com.
Opinions and claims expressed above are those of the author and do not necessarily reflect those of ScripType Publishing.