Long term care costs can bankrupt a family. Long term care costs include both nursing home costs and home-based care, and they are becoming more common and more expensive. Rapid increases in the costs of medical care, lack of government programs for long term care for anyone other than the indigent and increasing life expectancy are all contributing factors in the exacerbation of the problem of paying for long term care.
Awareness of the magnitude of the risk and knowledge of your choices and potential strategies are essential. Here are some facts to ponder:
1) Nursing home costs are very expensive and careful planning is required to protect family assets. Currently, costs vary by region, facility, etc., but it is not unusual for monthly bills to be in the $8,000 to $10,000 range. Home-based care can be estimated to be about half that amount, depending on the amount of care needed. There are times (for example, when 24 hour per day nursing care is required) when home based care can exceed the cost of nursing home care.
2) Medicare will NOT pay for ongoing nursing home costs. Under certain circumstances, Medicare will pay for the first 100 days of nursing home costs and after that, nothing.
3) Medicaid is designed for people who are poor. Qualifying for Medicaid if you are not currently poor requires either the spending down of family assets, or the transferring of assets to a Trust specifically designed for such purpose. Trusts must be in place long before the settler of the Trust needs to apply for Medicaid – at least 5 years to comply with Medicaid’s “look back” period.
4) In most cases, retirement income will be insufficient to pay for nursing home costs. Family assets will have to be used, potentially putting other family members at risk of reducing their inheritance.
5) The baby boom generation is likely to spend more time in nursing homes and more money on long term care costs than any previous generation.
6) Home-based care is generally less expensive than nursing home care, but is not an option for many families due to the emotional and physical strain on (aging) caregivers. In many cases, home based care is simply not an option.
7) Currently, the average nursing home stay is approximately two and one-half years. This would put the total bill in the $240,000 to $300,000 range. Obviously, some people spend much less time than the average in a nursing home, with other people spending a great deal more time.
Such gloom and doom! Now let’s turn our attention to some of the choices you have in approaching the problem of paying for long term care. There is no one-size-fits-all solution, but here are a few of the strategies we have encountered in our practice over the years:
A) Do nothing and roll the dice, cast your fate to the winds, (or whatever other cliché you prefer). This may be a logical choice for some families, but …………
B) Set up a Trust designed to qualify the settler of the Trust for Medicaid.
C) Buy long term care insurance.
D) Buy long term care insurance as part of New York State’s Partnership for Long Term Care.
E) Invest in (usually a substantial amount), and move into, a Continuing Care Retirement Facility
F) Buy life insurance with a rider that allows for borrowing against the policy to pay for the beneficiary’s nursing home costs.
G) Purchase a (private) annuity designed to be used for the payment of future nursing home costs.
H) Segregate a portion of your assets to be retained by the family to pay for potential long term care costs, with any remainder available to your estate.
This discussion merely scratches the surface of the complex topic of planning for the payment of long term care costs. To learn more about long term care costs and the many issues involved, please contact John J. Patrick, CPA at 315.701.6455 or JPatrick@gsacpas.com. John J. Patrick, CPA is a Partner at Green & Seifter CPAs and practices in the areas of individual, partnership, fiduciary and not-for-profit tax return preparation and tax planning for individuals and businesses.
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