Avoiding Long Term Care Expenses

Dear Client:

Happy first week of Summer. Hopefully, your time over the next few weeks is filled with warm weather activities and positive interactions with good friends and family.

This edition of my blog, on www.benebuslaw.blog, centers around issues of long term care and the preservation of assets in the estate. This topic can quickly become complex if an individual owns real estate and a wide variety of property, but this article will address the topic on a basic to moderately complex level.

Long Term Care

What is long term care? In general, long term care (LTC) can be defined as the necessity of medical care for an extended period of time, perhaps a year or more. The typical situation occurs when an individual ages and requires either an assisted living accommodation with nursing assistance available on a regular basis, or the relocation to a nursing home, elder home, or senior center that provides 24 hour nursing care.

The issue with long term care of concern to most people focuses on the expense. Studies show that monthly charges for a senior center with 24 hour care can range from approximately $5,000 per month to $10,000 or more. Roughly speaking then, at $60-100,000 per year, costs can overrun an estate and drain an individual’s assets over a relatively short period of time. Are there options? Fortunately, there are some planning techniques that can be implemented to address this cost situation.

Long Term Care Insurance
Let me just say immediately, I do not sell LTC insurance nor am I financially connected with anyone who sells such insurance. I do know several reputable agents available who I am happy to recommend as referrals and I would not hesitate to direct a client to any of these agents. They can likely provide more information on LTC insurance than I will in this article. But for an overview, let’s cover a few items on LTC insurance.

LTC insurance is often designed as a product to provide a financial payment toward the facility providing the care. Insurance benefits are usually determined on a daily or monthly basis. My experience with reviewing LTC policies tells me that benefit levels can range from $50 per day up to several thousand dollars per month. Of course, premiums are adjusted accordingly.

Premiums are also affected by health underwriting, and perhaps most importantly, the age of the applicant. An individual applying for LTC insurance at age 40 pays significantly less in premiums than a 70 year old individual might pay. But then, the logic is easy to see that the 40 year old is paying premiums for several more years than the 70-year old, perhaps making it an even swap. These are basic details that need to be analyzed, which is where a good insurance agent can be a big help.

Are LTC policies worth it? Of course, insurance is always only worth it if a person ends up using it. Otherwise, the insurance company “wins” because it doesn’t have to pay a claim. But some policies have cash back features that might be more attractive, too. As always, premiums are probably adjusted for such a feature, but a “refund” feature can be an economic way to gain coverage. The idea of buying LTC insurance becomes a personal decision at this point, and every person’s situation differs. My advice would be to get at least two quotes and to understand thoroughly the benefits behind those quotes before buying.

Medicaid and Medical Assistance
The second option in paying for LTC is to qualify for government funded-medical assistance, or Medicaid. Medicaid requires an individual to hold no more than $3,000 of assets and to retain very minimal amounts (less than $100) of monthly income. Other personal assets may also be retained, but generally nothing of any great financial value can be owned. Spousal ownership of property also plays a role, but will not be addressed in this article.

If a person has some financial means when entering a senior center and exhausts his estate value after a year or two, the person will usually end up qualifying for Medicaid and all medical bills, including LTC are paid by the government program. This program probably covers over 50% of individuals currently in senior centers. Without better alternatives, Medicaid often becomes the last stop financially to provide care for the elderly.

Qualifying for Medical Assistance Through Trust Ownership
To qualify for Medicaid before exhausting all financial reserves, individuals often look for other options. One of these options involves placing assets into an irrevocable trust and naming another person as the trustee. For example, an individual with $250,000 of assets might establish an irrevocable trust and name his daughter as his trustee. The individual will have forfeited all control over the $250,000, but will have potentially transferred this amount to his daughter under the terms of the trust. Now being destitute without further income, the individual qualifies for Medicaid, except for one detail.

Qualifying for Medicaid requires the satisfaction of a lookback period of five years. An individual cannot transfer all property to a trust on day one, then be eligible for Medicaid on day two. A period of five years must pass from the time of the transfer of property up to the time the individual applies for Medicaid. Any property transferred to a trust or to a family member before the five year period has run is determined to still be owned by the individual, and potentially disqualifies the individual from qualifying for Medicaid at that time.

Transferring property to an irrevocable trust helps an individual qualify for Medicaid, but establishing the trust properly can be an intricate legal procedure. Previous articles have addressed various types of trusts. Using an incorrect trust or assigning a trustee improperly can act to defeat the idea of transferring property to a trust when expecting to qualify for Medicaid. Competent legal professional guidance can become invaluable during this process.

Other Possibilities
If none of these options are appealing to you, there is a final, usually less appealing alternative. Decades ago, individuals who aged and simply needed elder care might live with relatives. The relatives, often a child of the individual who might have his own family, would care for the individual until the individual’s death. In today’s world, this might be a possibility for a limited number of people, but generally would not be an option for most of the elderly. Yet, to thoroughly examine all options, living with willing friends or family could be a cost-free (financially, speaking) option available to those in the right situation.

The bottom line when determining how to pay for LTC is that there is a significant planning process that goes into such a project. If it’s not shopping for insurance, the process likely involves rearranging assets within a person’s assets. Careful thought and good advisors can help with this process. Our office is available to assist with legal concerns involving LTC.

Thank you for the opportunity to have been of service in the past. Feel free to call with any questions you might have in the future.


Scott A. Becker, Esq.