When Don, 85, fell and broke his hip, he wasn’t able to return to the home he shared with his wife Gwen, 79. He needed full-time nursing care to help him do the things he was used to doing for himself. Don and Gwen worked hard throughout their lives to purchase the modest home where they raised their children and entertained their grandchildren and great-grandchildren. They’d also put money into retirement savings which they’d used for living expenses since retirement. They have $80,000 left in that account.
The average cost of long-term care in Tennessee is $8,000 a month. If Don pays out of pocket for his long-term care their savings will be gone in 10 months. While Medicaid will then cover the cost of Don’s care, Gwen will be left without any way to purchase food or medicine or pay for utilities. Their children hoped this day wouldn’t come. Now they’re faced with some difficult decisions and a very limited amount of time in which to make them.
None of us like to think about needing long-term care for ourselves or our aging parents. The U.S. Department of Health and Human Services estimates that someone turning 65 today has a 70% chance of needing some type of long-term care. Since the average lifespan of Americans tops 77 years old, we’re all facing a high probability of having to make difficult decisions about long-term care. For many, one of the most difficult decisions is how to pay for this care.
Senior adults requiring long term care have a few options when it comes to who pays:
- Long term care insurance (if the policy was purchased and kept up to date)
- Out of pocket
When people think of long-term care, Medicaid is one of the first options that come to mind, but for the government, it’s supposed to “the payer of last resort.” Which means, if you have too many assets (like Don and Gwen) or too high of income you won’t qualify for these benefits. And qualifying isn’t as simple as giving away your assets to your children. In fact to prevent this Medicaid has enacted a 5-year look-back policy. Any assets given away during that period (with a few exceptions) incur a penalty. During this penalty phase, the senior adult or their family is responsible for paying for care.
So what happens for seniors like Don and Gwen?
Fortunately, the family does have options to provide the care Don needs while protecting enough assets Gwen can continue to live at home. To help them make the right choices based on their parents’ needs, the family contacted an attorney versed in Elder Care Law.
We’ll talk briefly about a few of their options (and your options too if this scenario describes you), but you can find more detailed information on AgingCare.com.
Certain transfers of assets are allowed without penalty by Medicaid including:
- Transfers of the applicant’s house to their spouse
- The applicant’s child who is under 21 years old
- The applicant’s child who is blind or permanently and totally disabled
- The applicant’s sibling who has an equity interest in the home and has been residing in the home for at least a year
- The applicant’s adult child who has been residing in the home for at least two years and provided the applicant with care.
Asset Protection Trusts
Assets like Don and Gwen’s home or even income-producing assets moved into this type of trust no longer belong to you. They can reserve the right to live in their home until their death or to receive the income from income-producing assets, but they don’t belong to Don or Gwen. This allows you to meet Medicaid’s income and asset requirements. However, anything in the trust is subject to the five-year look back just as if they transferred the assets to an individual.
Medicaid Compliant Annuities and Promissory Notes
This one gets a little more complicated. Under this strategy, Don and Gwen would transfer part of their assets to a child for an inheritance knowing it would trigger the Medicaid lookback penalty. With the remaining assets, then they would purchase an annuity or write a promissory note that provides monthly income for the months of Medicaid penalty.
If Don has a family member or friend who can offer the care he needs in his home, he and Gwen could opt to hire that person as a caregiver. They must have a legal agreement that meets specific guidelines for this arrangement to be accepted by Medicaid.
In Tennessee, the non-applicant spouse of a nursing home Medicaid applicant (in this case Gwen) can retain half of the couple’s joint assets up to a maximum of $130,380.
All these guidelines can be confusing, especially when you’re already overwhelmed with difficult decisions. Now’s the time to call on someone with expertise in the field of Elder Law. The Stiles Law Firm has walked through these issues with hundreds of families. We’re here to help you make the best decisions for your family. Your parents provided and cared for you, let us help you provide for them now.