ELITE ADVISOR BEST PRACTICES
Protecting Client Assets From Nursing Home Costs
Some healthy reminders for advisors
By Gina Barry
- Changes in Medicaid law that took effect in 2006 have significantly reduced last-minute asset protection opportunities.
- Contrary to popular belief, nursing home care is not paid for by Medicare or Medicare supplemental insurance.
- Nursing home residents and their families will pay on average $13,000 a month over a typical 30-month stay.
- The only surefire way to maximize the assets protected for your family is to begin planning at least five years prior to a nursing home admission.
Note: This article was originally written for a Massachusetts audience. Please check rules and regulations in your own state carefully.
Long-term-care costs can deplete your clients’ assets at an alarming rate. Many of your clients or a close relative will enter a nursing home during their lifetime and will incur a mean monthly cost of $13,000 for an average stay of two and a half years. To make matters worse, they have spent the majority of their lives working and building assets so that their retirement will be well-funded, but retirement comes at a time when the possibility of catastrophic illness is more likely. Planning ahead will mean the difference between spending one’s assets to finance any needed care and preserving one’s assets for one’s family.
Contrary to popular belief, nursing home care is not paid for by Medicare or Medicare supplemental insurance. While Medicare may provide benefits for rehabilitation for a short time, once Medicare benefits end, another source of payment must be found if the person is not then able to go home and must remain as a resident of a nursing home. Medicaid benefits are available to help pay for nursing home care, but they are available only once eligibility requirements, which include strict asset limits, have been met.
The power of advance planning
Changes in Medicaid law that took effect in 2006 have significantly reduced last-minute asset protection opportunities. While there are still a few beneficial options available if you fail to plan ahead, they apply only in very specific situations. The only surefire way to maximize the assets protected for your client’s family is to begin the planning process at least five years prior to a nursing home admission.
Assuming that five years will pass before a client is admitted to a nursing home, you may want to introduce the family to a gifting plan. When applying for Medicaid benefits, MassHealth, for instance, will look at the five-year period immediately preceding the application to determine whether your client made any gifts. If gifts are found within this time period, a penalty period will be set, during which insurers such as MassHealth will not pay any Medicaid benefits on your client’s behalf.
If at least five years and one day have passed since the date of the gift, under the current rules the gift will not need to be reported when applying for benefits. Hence, no penalty period will be set. A gifting plan may consist of outright gifting, usually to a client’s children, or gifting to an irrevocable trust that can continue to provide your client with income until your client passes away. There is danger involved in gifting, as a client may be admitted to a nursing home prior to the expiration of the five-year period. You and your client must plan for this possibility before beginning any gifting. Gifting may also have serious tax consequences that should be discussed before proceeding.
Clients might also consider purchasing assets that will not count toward the asset limit on Medicaid benefits. Examples of exempt assets include an irrevocably prepaid funeral, a burial account of no more than $1,500, a car, term life insurance and, in some cases, a home. The payment of outstanding debts, such as a mortgage or credit card balances, can also be beneficial in some cases.
Paid care agreements and long-term care
If a client is presently being cared for by an adult child, you might consider having your client establish a paid care agreement with the child. The client would then pay the child for the care provided according to the terms of the agreement. As your client “pays” for care, he or she would in effect be “purchasing” the care services from the child instead of gifting to him or her. Your client would also be benefiting the child by providing the child with additional income. These agreements must be reasonable and fair to your client and your client’s caregiving child.
Aside from a plan to obtain Medicaid benefits, long-term-care insurance can alleviate the draining of assets and provide increased financial stability. Long-term-care insurance will pay for nursing home care according to the benefits purchased. A wide range of policies is available, including unique combinations of benefits and pricing structures. It is possible to buy a policy that will also pay for assisted living, home health care expenses and geriatric care management. Some policies even have a provision that if the long-term-care benefits are not used, then the premium may be refunded or a death benefit may be paid. In order to purchase long-term-care insurance, clients must be insurable, which means not having a health condition that would prevent the insurance company from insuring them.
The planning strategies mentioned in this article are extremely complex. This article is intended to raise awareness of possible planning opportunities, but a full discussion of the pros and cons of each possibility has not been provided. Advisors and clients should seek the advice of an elder-law attorney before proceeding. Do so now to avoid paying later.