It’s estimated that roughly 50% of men and 60% of women will need skilled nursing home care at some point in their life. Many people mistakenly believe that Medicare or Medicaid will cover these long-term care needs. The reality is that most people use their own resources to pay for long-term care and with the high cost of nursing homes, a lengthy stay can quickly deplete your assets. So how do you not go broke in a nursing home?
There are ways to manage your estate so you don’t go broke paying it all to a nursing home, but it requires understanding the options available at different life stages.
The stage of life you’re in when you start planning will determine which options may be best for you, the earlier you plan the more options you’ll have.
If you’re a healthy person between the ages 50 and 65, investigate long-term care insurance. LTCI is an insurance policy that covers care generally not covered by health insurance. Long-term care insurance becomes more expensive to underwrite as a person gets older, and if a chronic illness is already present it may not be offered at all.
While LTCI may seem expensive, it will cover nursing homes, assisted living, adult day care, or home health care for people with a chronic illness or a condition that limits their ability to perform activities of daily living such as bathing, toileting or feeding themselves. It’s estimated that 70% of individuals over 65 will require some type of long-term care during their lifetime.
LTCI helps to protect your lifestyle and your assets. It preserves the money you’ve worked so hard to save. The average LTCI policy covers about 3 years of nursing home care.
To qualify for Medicaid applicants, need to have limited assets and low income. If you do have assets, Medicaid expects you to use them or rely on long-term care insurance before turning to the government for assistance. But no one wants to exhaust all their money just to qualify for aid. That’s where Estate Planning comes in.
It’s a good idea to plan your estate assuming that one day it might be beneficial to utilize Medicaid. To ensure that you don’t give away your assets just to qualify, Medicaid implements a 5-year look-back period. Knowing that most care claims begin when people are in their 80s, some thoughtful and timely estate planning in your 70s is a smart way to protect your assets.
Look into life estates, living trusts and annuities with the goal of getting your assets out from under your name 5 years before you think you’ll need to apply for Medicaid. If your assets are no longer under your name, Medicaid will not require you to use them if you have complied with their 5-year look-back period.
An elder law attorney can offer you advice on the best options and strategies available to you based on your life stage.
If you need a nursing home and you don’t have long-term insurance and you didn’t get your assets out from under your name within the Medicaid 5-year look-back period, then you’ll have to use your available income and assets to pay for nursing home care until your finances are depleted enough to qualify for Medicaid.
At this point the focus turns to minimizing the money required to go to the nursing home by following a Medicaid spend-down financial strategy that takes advantage of allowable exemptions. These exemptions are assets that Medicaid doesn’t have a 5-year look-back period for. Things like pre-paying for your own funeral costs, certain home improvements or buying a car.
Make sure you save bank records and receipts. Medicaid will require receipts for any large expenses, including financial gifts. For best counsel on this speak with an elder law attorney, someone in your town’s social services department, or your local Area Agency on Aging.
The Best Long-Term Care Plan: Start Early
The earlier you get started, the more options you have in protecting your assets when the need for a nursing home arises. Be proactive by looking into long-term care insurance and estate planning.