I got a lot of phone calls about long term care planning after an article on Medicaid planning I ran a month or so ago. There were common areas of concern from spouses, parents and children caring for loved ones about the nature and range of financial planning options for long term care so here goes my top five tips.
Tip #1 Long term care includes nursing home care, assisted living, adult day care, respite care, and home health care. By age 85 nearly 55% will require some form of long-term care and approximately 44% will require nursing home care after age 65. These numbers do not reflect the millions of younger disabled persons that need long-term care at some point in their life. Caregivers report endless frustration, severe emotional stress and lose billions of dollars a year in lost wages trying to deal with bureaucracy. A knowledgeable professional should be able to review everything in an hour or two and give you a solid plan that suits your family situation and personal needs. Working with a professional will give you peace of mind and you will spend much less up front and save tens of thousands of dollars and endless hours of trying to learn everything on your own.
Tip #2 Purchase long term care insurance, if you can afford it. Many policies use to be for only 3 years, now you will see five year plans and more affordable spousal options. Nevertheless, shorter plans can still be good deals and useful planning tools if you have family support for home care.
Tip #3 Professional long-term care planning tools include: personal dependency, medical deductions, home transfers after accounting for basis and capital gain issues, annuities, converting interest income, domestic help, sale of property, sale of the home, owner financing, purchasing a new home or condo, commercial and family held reverse mortgages, owner occupancy rules and using a Medicaid waiver on the back side, partial sales, gift tax rules, life estates, private pay using long-term care insurance and other options, Medicare, Veterans Benefits, Medicaid, dozens of spend-down strategies, promissory notes, student loan forgiveness, life insurance loans and cash ins, legal separations and divorce, QDROs, bankruptcy, income trusts, special needs trusts, housekeeping and caregiving contracts, and various asset transfer options including special consideration for IRAs, 401K, deferred pension plans and other retirement plans. One plan does not fit all situations. Be wary of the source of your legal information. I’ve had the family insurance man cost clients $8,000 on a preneed burial, an elder’s home sold when a lawyer gifted it to a son who then lost his job and declared bankruptcy, and an entire estate gobbled up by listening to the next door neighbor.
Tip #4 Consider a caregiver contract with children or others where you pay for necessary services. Such contracts need to be in writing and comply with all aspects of the law including state and federal earned income rules and mandatory withholdings.
Tip #5 Disability and long-term care needs can come at any age, this is not just a senior issue, and therefore having good legal documents is the foundation of any plan. All powers of attorneys and wills should be reviewed for adequacy. Often old documents or those prepared by non-elder law or estate planning specialists fail to include language to deal with the IRS, gifting, specifics on the description of real property that may be sold or financed that a title insurance company may prefer, and have accounting provisions to safeguard your financial assets.
1Long-Term Care Insurance or Medicaid: Who Will Pay for Baby Boomers’ Long-Term Care? American Council of Life Insurers Research Findings, 2005.