Will your nest egg pay your nursing home costs?

Start planning now to avoid paying later By Gina M. Barry, Esq. Partner, Bacon & Wilson. P. C. Special to PRIME You have spent the majority of your life working and building your nest egg so that your retirement will be well-funded. Unfortunately, retirement comes at a time when the possibility of catastrophic illness is more likely. Of all Americans aged 65 or older, approximately 43 percent will enter a nursing home during their lifetime. Given that the average yearly cost of nursing home care is $90,000 and that the average stay will last two-and-a-half years, planning for this need is crucial, as long-term care costs will deplete your nest egg at an alarming rate. Planning ahead, which is planning several years prior to nursing home admission, will mean the difference between spending your nest egg to finance your care and preserving your nest egg for your family. Paying for extended care Long term nursing home care is not paid for by Medicare or Medicare Supplemental Insurance. While Medicare may provide benefits for a short time period, once Medicare benefits end, the nursing home resident must find another source of payment. Medicaid benefits are available to help pay for nursing home care, but they are only available once eligibility requirements, which include strict asset limits, have been met. Recent changes in Medicaid law 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 and are not commonly available. The only surefire way to maximize the assets protected for your family is to begin planning at least five (5) years prior to a nursing home admission. Long-term care insurance Obtaining long term care insurance can alleviate the draining of assets and provide increased financial stability. Long-term care insurance will pay for long-term nursing home care according to the benefits purchased. A wide range of policies is available, including unique combinations of benefits and pricing structures. For example, some policies will also pay for assisted living or home health care expenses, thus increasing one's long-term care options. Some policies provide that if long-term care benefits are not used, the premium may be refunded as a death benefit. In order to purchase long-term care insurance, you must be insurable, which means that you do not have a health condition that would prevent the insurance company from providing you with insurance. Other options to protect assets Assuming you do not purchase long-term care insurance or that you are already uninsurable, you should still consider purchasing assets that will not count toward the asset limit for Medicaid benefits. Non-countable assets presently include an irrevocably prepaid funeral, a burial account of no more than $1,500, a car, 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. Assuming that five years will pass before your admission to a nursing home, a gifting plan may also be considered. When applying for Medicaid benefits, the Division of Medical Assistance will look at the five-year period immediately preceding the application to determine if you made any gifts. If gifts are found within this time period, a penalty period will be assessed, during which time the Division will not pay any Medicaid benefits on your 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 assessed. A gifting plan may consist of outright gifting to your beneficiaries, usually your children, or to an irrevocable trust that can continue to provide you with income until you pass away. There is danger involved in gifting as you may be admitted to the nursing home prior to the expiration of the five year and one day period. You must plan for this possibility before beginning any gifting. Family care and asset protectionGet advice before your proceed The planning strategies mentioned in this article are extremely complex. This article is intended to raise possible planning opportunities, but a full discussion of the pros and cons of each possibility has not been provided. If you are concerned about protecting assets, it is highly recommended that you seek the advice of an elder law professional before you take any further steps. Do so now to avoid paying later. Gina M. Barry is a Partner with the law firm of Bacon Wilson, P.C., Attorneys at Law. She is a member of the National Association of Elder Law Attorneys, the Estate Planning Council, and the Western Massachusetts Elder Care Professionals Association. She concentrates her practice in the areas of Estate and Asset Protection Planning, Probate Administration and Litigation, Guardianships, Conservatorships and Residential Real Estate. Gina may be reached at (413) 781-0560 or gbarry@baconwilson.com.gbarry@baconwilson.com