Live long enough, and you may face a difficult transition: You need nursing home care, but your assets will run out long before your life ends. If you have no assets, Medicaid will pay for nursing care, but only once you’ve used up most of your own resources.
Scrambling to qualify for Medicaid can be difficult and leave your spouse or heirs with less than you had hoped. That’s why the best time to plan for the possibility you will outlive you assets is years or even decades before your money runs out.
“You don’t want to wait until you know it’s going to happen,” says Drew Horter, president of Horter Investment Management in Cincinnati. “Planning should start while you’re still young.”
Nearly all Americans, no matter their income or assets, are eligible for Medicare to cover their health care in retirement. While Medicare covers doctor visits, treatments, hospitalization and drugs, it does not pay for long-term care. Medicare will cover a short-term stay in a nursing home for rehab, but it will not cover any type of long-term care.
[See: 10 Ways to Get Ready for Retirement After Age 50.]
According to the Genworth Cost of Care Survey, the cost of nursing home care averages $225 a day for a semi-private room, which will eat quickly into a modest estate. Medicaid, which covers medical care for poor people of any age, will pay for long-term care in a nursing home, but only for people who meet certain asset and income guidelines, which vary by state.
“The Medicaid system is really to protect the people who have limited incomes,” says Lisa LaMarche, president and co-founder of Milestone Wealth Advisors in Greenville, Delaware.
When you or a parent are nearing the end of your assets, Medicaid may be the only option for care in the final years of life. Making the right moves ahead of time could be the difference between keeping the family home for the next generation and being forced to sell.
In situations where one spouse needs expensive nursing home care and the other is in good health and expects to live many more years, planning is especially important. “You really are at risk of leaving the other person with nothing,” LaMarche says.
When, how and if you can transfer assets, such as stocks, bonds and other investments, to children or other relatives to qualify for Medicaid varies by state. In general, the state will take a close look at any assets transferred in the last five years. “If people do this, they really need to tread lightly,” LaMarche says.
[See: 10 Costs You Can Eliminate in Retirement.]
Planning for end-of-life care should be done as part of retirement and estate planning. Depending on the situation, families may want to consult with a lawyer and financial advisor who specializes in Medicaid planning.
“[Planning for long-term care is] one of the most pressing issues for financial advisors in the baby boomer era,” says Christina Lindsey Orta, vice president of Lindsey and Lindsey in Westlake Village, California.
In California, for example, families can shelter some assets by using a Medi-cal Estate Planning Trust, but the rules are complex, and the elderly parents have to trust their trustees to use the assets for their benefit. “You obviously have to have trustworthy children,” Orta says.
Here are seven things to know if you think you or a parent might need to depend on Medicaid for nursing care.
Not all facilities accept Medicaid patients. Nursing homes aren’t required to accept Medicaid. Some have only a limited number of places for Medicaid patients. If you move your parent into a nursing home, you should ask whether he or she will be able to stay if Medicaid gets involved.
Eligibility rules and asset limits vary by state. Most states allow you to keep your house and a certain level of assets and still qualify for Medicaid. Some states use the rules for Supplemental Security Income, which allow for only $2,000 in assets, not including your home.
The state will look back five years. In determining your eligibility for Medicaid, the state will review what assets you have given away or otherwise disposed of in the past five years. Selling assets at less than market value to heirs or otherwise giving away assets could delay Medicaid eligibility.
Asset caluclations take into account healthy spouses. In general, a healthy spouse is allowed to keep half the joint assets plus enough income to live on when his or her spouse qualifies for Medicaid. The amount may vary by state and situation.
The state may seek to recoup its cost after your death. Once the person receiving Medicaid has died, the state may seek to recover the costs of care, either through filing a claim against the estate or filing a lien against property. The property usually is safe as long as the surviving spouse is living.
Transferring assets to children may have tax consequences. If you paid $100,000 for your home, and it is now worth $500,000, your son will owe capital gains on the $400,000 difference if you give him the home while you are still alive. If he inherits the home after your death, his cost basis is the value when you died. Gift tax also can apply to large gifts during your lifetime. “It’s not a good idea to gift highly appreciated assets,” LaMarche says. “To me, there are a lot more cons to doing that than pros.”
[See: 50 Affordable Places to Buy a Retirement Home in 2016.]
Spending assets on long-term care insurance may be a preferable option. If you expect to outlive your assets, a long-term care insurance policy might be preferable to Medicaid. “It’s something that’s often overlooked, and people don’t want to pay for it,” Orta says. Some newer hybrid products combine life insurance and long-term care or annuities and long-term care, and the size of the death benefit depends on whether the long-term care is used.
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What to Consider If You May Depend on Medicaid for Nursing Care originally appeared on usnews.com
