The odds are that most of us will need long-term care. At least 52% of those over age 65 will need some type of long-term care at some point in our lives, according to a study conducted by AARP. As most of us are living longer, we’ll probably need that care for a longer period of time, as reported in the article “It’s best to plan for long-term care” from the Times Herald-Record.
Many people 55 and older tend to believe that they might be in the group that won’t need any sort of long-term care. Here’s the problem: ignore this issue, and it won’t go away. It is true that turning a blind eye can be tempting because the size of the problem makes it a bit overwhelming, and the cost to tackle it seems unsolvable. However, not addressing it becomes even more expensive. How can we possibly pay for long-term care insurance?
Here’s a simple example: a 64-year-old woman fell and broke her ankle in three places. She was otherwise healthy and mobile prior to the fall. However, a badly broken ankle required extensive rehabilitation and she was not able to stay in her home. She has been living at a rehabilitation center and the costs are mounting. What could she have done?
There are two basic ways (with a number of variations) to pay for long-term care.
The first and most obvious: purchase a long-term care insurance policy. Only 2.7 million Americans own these policies. They are wise to protect themselves and their families.
Most families put off buying this kind of insurance because it’s expensive at any age and stage. The average cost is about $2,170, according to the Kiplinger Retirement Report, for about $328,000 worth of insurance. That rate varies, and it should be noted that if you have a chronic condition, you may not be able to purchase a policy at all.
If local nursing homes costs $216,000 per year and you have $328,000 of coverage, the numbers make it obvious that you will likely run out of coverage before your needs are fully met. The average nursing home stay is about two years. As boomers age, the cost of long-term care insurance is rising, while benefits are becoming skimpier, says Kiplinger.
There are some alternatives: a hybrid life insurance plan that includes long-term care coverage. However, those can be more expensive than regular long-term care insurance, with the cost sometimes being about $8,000 a year for a 55-year-old and about $13,000 for a 65-year-old.
Another choice: a Medicaid Asset Protection Trust. For best results, you’ll need to work with an estate planning attorney to create and fund this trust long before you actually need it. Your assets must be placed in the trust at least five years before an application to Medicaid, which will then pay for your care. You don’t have to live in complete poverty to do this. If the care is for one person, the applicant is permitted to keep a certain amount of assets, which vary depending on your specific state laws (in California, that amount is $2,000). The Medicaid rules also provide a number of noncountable resources, which means that those items won’t be counted against your asset limits. This includes a home, the value of retirement accounts, and term life insurance. The spouse may also keep assets of their own up to about $120,000, although this number also varies by state.
However, what if you have money to pay or need long-term care before you put assets in trust? If you live in New York, Florida and Connecticut, you have what is called “spousal refusal.” The spouse of the person in long-term care can choose not to pay for their cost of care. This can get complicated, and Medicaid will try to get funds for the care. However, an estate planning elder law attorney can negotiate the amount of payment, which may leave the bulk of your estate intact.
These are complicated matters that become very costly, often at a time when you and your family are least able to deal with yet another issue. Speak with an estate planning attorney before you need the care and learn how they can help you protect your spouse and your assets.
Reference: Times Herald-Record (July 22, 2019) “It’s best to plan for long-term care”