A concern we frequently hear goes something like this: “If I ever go into a nursing home, they’re going to take all my assets!” While this concern may not be accurate, the underlying fear is real: all your life savings being used up to pay for your end-of-life care, leaving little left for your loved ones.
It should be stated at the outset that nursing homes and other similar facilities do not “take” people’s assets – although it can feel that way! The reality is, any person in need of a nursing home stay is required to pay for the services provided. And these costs are significant – oftentimes exceeding six figures each year. So, while the nursing home isn’t actually taking your assets, it feels this way as you rapidly spend down your life savings to pay the nursing home bill.
Given this very real possibility, we are often asked if there are ways to “protect” someone’s assets from being spent entirely on their long-term care. Or, to put it differently, are there alternative ways to pay the nursing home that will allow assets to be preserved for loved ones? There are some alternatives and ways to “protect” life savings, but these require carefully coordinated planning.
Long-term Care Insurance
One method for paying for long-term care is through long-term care insurance. Once an insured qualifies for benefits, a standard long-term care policy can provide the insured with a specific benefit for a certain period (for example, $150 per day up to five years). This benefit can cover a substantial portion of the nursing home cost, helping to preserve the insured’s life savings for their loved ones. Long-term care insurance is not a foolproof solution, however.
There are some drawbacks. Some of the more significant ones are:
- (i) you must qualify
- (ii) premiums can be expensive
- (iii) if the policy is never used, there can be a sense the money spent on premiums was wasted.
One alternative to a more traditional long-term care insurance policy described above, and which may avoid some of its drawbacks, is a hybrid life insurance / long-term care insurance policy. This hybrid policy operates much like a traditional long-term care policy, except that if the long-term care benefits of the policy are never used, the policy benefit passes to named beneficiaries at death (and so the premiums are not “wasted”).
About Insurance Strategy Planning
Medicaid + Gifting
Another option for paying for long-term care is by way of Medicaid benefits. Medicaid is a joint Federal-State welfare program that provides medical care (including nursing home costs) to individuals with limited resources and income. That last phrase is really the key. Medicaid is not for everyone. Applicants must qualify by having a low amount of assets and income.
The question then is this: is there a way for Medicaid to pay your nursing home stay, while at the same time preserving your assets for your loved ones?
Utilizing Early Gifting to Loved Ones
Unfortunately, there are no easy answers to this question. The most common “Medicaid planning” strategy is to utilize early gifting to loved ones. The technique looks something like this: gift the assets you desire to preserve to your loved ones now, at least five years before applying for Medicaid benefits. This is because gifts that are made within five years of applying for Medicaid benefits can affect the applicant’s eligibility. Gifting to preserve assets is a strategy that must be thought through well in advance of any Medicaid application.
Applicant Eligibility: As noted above, gifts that are made within five years of an application for Medicaid benefits affect the applicant’s eligibility.
Finality of the Gift: It should be noted that Medicaid does not have the power to “undo” a gift. Once the gift is made, it is final.
Penalties: However, even if Medicaid cannot “undo” the gift, they can still penalize the applicant: they become ineligible for Medicaid benefits for a certain length of time. The length of the penalty is tied to the value of the gift.
Loosely calculated, if the gift could have paid for one year’s worth of nursing home care, then Medicaid benefits will not kick in for one year. What this penalty does is effectively force the person who received the gift to pay for the Medicaid applicant’s nursing home care with the funds they received (the very thing the Medicaid applicant was trying to avoid in making the gift!).
In sum, gifting to loved ones to preserve assets must be done with a high level of caution. This post just scratches the surface on planning for long-term care. If you have questions or would like to speak with someone to see if your situation could benefit from additional planning considerations, please do not hesitate to reach out.
*The information contained in this blog post is provided for informational purposes only and should not be construed as legal advice on any subject matter.
