Long Term Care Planning
Long term care expenses are by far the most common concern of my clients. With nursing facilities averaging around $8,000 a month in cost, it is not surprising. Needing care that a nursing home provides at the cost of your life savings can be heart wrenching for most families to experience. Going without that care shouldn't be the compromise. Planning ahead can soften the blow you experience when in need of that care without having to forego the support you need.
The Federal and State governments have provided a safety net for individuals who are in need long term care but cannot afford it. Medicaid, known as Medical Assistance (MA) in Minnesota, covers long term care either in a facility or at home, for those who qualify. MA can be harsh to those who don't know the rules. The interplay of reducing assets, imposition of gifting penalties and required high levels of care can leave those considering the program scratching their heads.
MA requires that a single individual reduce their assets to no more than $3,000 prior to qualifying for coverage. Couples, where one spouse is living at home, are allotted a greater sum of $3,000 for the spouse requesting coverage and $128,640 (2020) in assets for the spouse at home. This number, in most circumstances, excludes the primary residence, one vehicle and the personal property of spouse at home. But, for those unfamiliar with the program, this reduction can be shocking. Planning before the care is imminent helps. Situations arise when preparation isn't possible, but taking the time now can reduce the panic that comes when significant care arises.
MA's gifting penalty is imposed for assets given away for less than they are worth in the 60 months leading up to the application for coverage. Gifting includes the transferring of a car, house, or investment account without being paid for it's value. It also includes presents given for holidays, birthdays, and weddings. Many clients don't believe me when I say all gifts count, but they really do. When applying it is the best practice to disclose all gifts that have been made in the five years prior to the application. Based on the value given, a penalty will be imposed upon the applicant. Said penalty comes in the form of a number of months in which coverage under the program will be withheld. What that means is, for that period of time, the applicant is required to privately pay for their care. These penalties can result in massive financial costs for the applicant, and their spouse. Gifting needs to be inventoried when looking at long term care planning.
Though MA isn't for everyone, and is by no means the goal in every plan, it's rules are a reference point for most when it comes to planning for care. For those with assets too great to be eligible for long term care, but concerns arise on what to liquidate, taxes associated with that liquidation, etc., planning for long term care is still necessary. Strategizing on maximizing income and spend assets if care is needed should be planned with all of your advisors (i.e., financial advisors, insurance agents, CPAs, attorney, etc.).
When it comes to long term care, planning before it is an emergency is key.