Protecting your assets from nursing homes
Who pays for nursing home careTo understand how to protect assets we must first explain which third-party payers can pay the nursing home bill. One of the biggest misconceptions people have is that they believe that Medicare provides coverage for long term care expenses. Medicare can cover expenses for a short term stay in a nursing facility to rehab after a hospital stay. However once your rehab is complete if you still need long term care services they will no longer pay.
So once this happens who pays the bill? For many people the answer is Medicaid. The only problem with choosing to go that route is that in order to qualify you must spend down the majority of your assets and forfeit most of your income. This will have far reaching implications for the spouse who remains at home or those who were hoping to leave an inheritance. The assets that need to be spent down include cash, money in the bank and investment accounts. Protected assets include the family homestead, one vehicle and partial protection of qualified retirement accounts.
How to protect assetsSo if spending down your assets doesn’t sound good to you what else can you do to protect your assets?
1. GiftingIf you plan in advance you could gift assets to children or other family members.
2. TrustAnother way to move assets out of your name is to establish an irrevocable trust. This is another way to transfer assets to children or other family members. When a trust is properly designed, the assets transferred to it no longer belong to you. This means that you’d no longer be able to take it back.
Although gifting is a good solution for some, it is critical to understand that any gifts to an individual or a trust are subject to a 5 year look back period. What that means is that if you enter a nursing facility, any assets transferred within the last 5 years are in play and may be requested back to help pay for your long term care expenses even if those monies have already been spent.
3. Long-Term Care InsuranceA way to avoid the whole process from everything listed above is long-term care insurance. It allows you to share the risk with an insurance company rather than take it all on yourself. Many people are familiar with traditional long term care insurance which has been around for many years. Although in some cases traditional long term care insurance can make sense it is harder to get now and is also much more expensive than in the past. The other objection that many people have is the “use it or lose it” nature of this product. You can pay premiums for years and if you never use it some feel that the money was wasted. The good news is that today the insurance industry has developed many new ‘hybrid” products to address the “use it or lose it concern.” Although there are many variations this approach typically utilizes adding a long term care rider onto a life insurance policy. Thus you can access a long term care benefit if you need it and if not your beneficiaries will receive a tax free death benefit upon your death.
Regardless of what direction you choose to go you should meet with a financial advisor to discuss the alternatives so you can make the best educated decision for you and your family. If you would like a complimentary review of your plan, call our office to set up an appointment. For more information on nursing home planning, listen to my interview with Clay Moden on 106.5FM WYRK.
WEEKLY SEGMENT ON WYRKYou can catch our weekly Plan.Protect.Invest. segment live on WYRK 106.5FM at 7:20am every Wednesday. Each week we will have a Sgroi Financial planner on with Clay Moden and the WYRK morning show to discuss financial topics to educate and help their listeners. Since 1971, Sgroi Financial has proudly served Buffalo, NY and the Western New York community from our West Seneca location.
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