 Personal Finance Powerpoint Presentation, Elder Care Strategies. Prepare to get financially fit by practicing personal finance. Insurance and Elder Care is part of our overall risk mitigation strategy where we use the adage of a measure twice, cut once, putting a formal process in place, looking something like set the insurance goals, develop a plan to reach the goals, put the plan in action, review the results, repeat the process periodically. Most of this information can be found at Investopedia. Eight strategies to help pay for Elder Care. You can find it online. Take a look at the references, resources. Continue your research from there. This is by Greg Dowerty, updated January 28th, 2022. Medicare, the federal health insurance program primarily for adults 65 and older, pays doctor and hospital bills for many older Americans. So obviously, Medicare is often part of the picture for many people. However, it doesn't cover everything. Long-term custodial care for help with the activities of daily living such as bathing, dressing and eating are not covered under the plan. There are other uncovered costs as well. These can be devastating to your finances if you don't have a plan in place. So obviously, as we get older, as we plan for people getting older ourselves and others, we want to think about what would be covered by something like Medicare, what kind of things would not be covered and then plan accordingly. So what do you do to cover the most burdensome of medical costs for yourself or another older member of your family? Read on to discover some of the ways you can plan ahead. The costs of Elder Care. Many older people will eventually need Elder Care perhaps because of a physical or mental impairment and they and their families will have to find a way to pay for it. Unfortunately, it is rarely cheap. In fact, it can quickly wipe out a person's life savings. A semi-private room in a nursing home in the United States costs an average of $250 a day or $7,756 a month in 2020, according to the most recent report on long-term care by Jin Worth, a private room averaged $290 a day or $8,821 a month. For people who don't need the level of care that a nursing home provides, a one-bedroom unit in an assessed living community runs about $141 a day or $4,300 a month according to Jin Worth's report. Home health aids for people who are able to remain in their own homes but still need some assistance can cost as much as $24 an hour. These are just averages, of course, in high-cost areas such as New York City. The bills can run much higher. Number one, long-term care insurance. Privately purchased long-term care insurance is one way to handle some of these costs. It provides coverage for nursing home care, home health care, personal care and adult daycare. But long-term care insurance can be expensive and is not for everyone. It's also generally most cost-effective when purchased before age 60. The average annual premium in 2021 for a couple, both 55 years old, is $5,025 according to the American Association for Long-Term Care Insurance. Number two, assets spend down and Medicaid. Some individuals may be comfortable with Medicaid as a primary option. If that is the case for you, then consider having a plan around depleting assets to qualify for Medicaid. So Medicaid is a joint federal and state program and the largest national program that provides health-related services for low-income individuals. So the problem with Medicaid, of course, is usually you're shooting to kind of do well. You want to have more revenue as it goes forward. Some of the benefit programs, just the nature of benefit programs are because they're based on wealth and income and so on that they actually incentivize people to have less so that they might qualify for the benefits of the programs. They got to kind of keep that, the pros and cons of that in mind. So the specifics vary by state. Medicaid generally covers nursing home services. In some states, Medicaid also covers services that can help people remain in their homes. In order to be eligible for Medicaid, you must meet specific income and asset requirements. Although the amount varies widely by state. In New York, for example, the 2021 Medicaid income eligibility level is $15,900 and below for individuals and $23,400 for couples. In order to qualify, a potential benefit must also have total countable assets under a certain amount, typically $2,000 for an individual and $3,000 for a couple. Countable assets include bank accounts, stock and bonds, the cash value of life insurance policies and, in some cases, retirement assets. A home, if the person owns one, may be excluded though home equity over a certain level can affect eligibility. Once the home is no longer the principal residence, it will be counted as a resource and can become subject to a Medicaid claim for reimbursement. So in other words, notice what you got to basically say here as you're now looking at a program which is designed to help people have lower income and asset levels. You got to qualify for that in order to qualify. Most people's big asset that they have on the books is oftentimes their home. Now, if they're living in the home, you kind of would say, well, you can't really count the home if they're living in the home because even though it's their big asset, they can't really cash it in, liquidate it to pay for bills like medical bills. But if they're not living in the home, then you might say, you could see why someone would say, well, now that home could be liquidated or could be sold or something like that in order to pay for the bills. So traditionally, people have often reached the eligibility threshold either by giving money to family members or through a spend down. So you might be saying, okay, well, if I'm getting older and I'm trying to qualify for Medicaid, then maybe I can give money to my family members and then be under a certain threshold so that I can qualify for the benefit program. That's great, but obviously there's some drawbacks with that because one, you're going to be completely, you're kind of dependent on the family members. So there's kind of a lot of trust going on with that that they're going to kind of take care of things for you. And two, there's some rules with regards to gift limitations and stuff that might make it a little bit difficult to take that route as well. So this occurs when they pay their own care until enough of their assets are depleted, which is often quickly. However, there are legal strategies that can help older people qualify for Medicaid without impoverishing themselves or their spouse. So obviously we don't really want to have a strategy where you're actually aiming to hit below a certain poverty line in order to get a benefit program which is designed to help people. So, but obviously that's the kind of thing that kind of happens with benefit programs sometimes as they're structured. So though the rules are complex, some of the specifics vary by state and the services of a knowledgeable lawyer are essential here. Here are a few options to investigate. So then we got number three, asset protection trusts. A properly established irrevocable trust can be one way to shelter assets where they will not affect Medicaid eligibility. So notice what you're trying to think about. Okay, now I've got a situation where I have to have my income below a certain level and my asset level below a certain level to qualify for a benefit program. I could give the money to say a family member possibly, but there might be like gift limitations and whatnot on it. And you can obviously talk to a professional on this like a planner to help you to set this kind of stuff up. You also might say, well, what if I put money into a trust? A trust is kind of, you can think of it similar like a corporation as its own entity. You possibly thought of the world trust is kind of like its own entity which is with its own purpose. So technically then the trust in essence would be owning the assets instead of the individual. And in that case, can I set it up so the trust owns the assets instead of me so that maybe my asset level would be below the threshold so I could qualify for the benefit program would be one thought process. Again, kind of complex in the way it's going to be set up. You want to make sure that you're planning that out properly. If that's a route you're going to be taking and talking to professionals to do that, but that's a thought process you can think through. And irrevocable trust which transfers assets to the control of a trustee effectively removes them from the older person's control. Now notice that you might be saying I'm going to set up my trust. I'd like to set up my trust in such a way that I still have control over the assets and this becomes one of the big kind of issues with a trust. Meaning if you put money into a trust and you still kind of have control over what the trust does with the money, then it's kind of like they might perceive it as you didn't really give money to the trust, right? If you gave money to the trust and you no longer have control over the money which is something obviously you might be reluctant to do because you'd like to still have control. Then when you don't have control over the money that means you don't actually own it and that's when you would think that it might lower your asset level. So right if you still have control over what the trust is doing. So that's obviously one of the components that is contentious about how you could set up the trust and how it's going to work. So this means that once established this kind of trust cannot be changed or broken without the beneficiaries permission. So this is in contrast to the revocable trust in which the person retains the right to change the arrangement. Which notice that again like if you're going to put your money into a trust you would like to be able to say, yeah, I can change it whenever I want because it's my money, right? But the point is that you're trying to say it's not your money. It's not your because that's what's qualifying you to go below the threshold. That's where the problem often happens. So revocable trusts which are also referred to as revocable living trusts have their uses but qualifying for Medicaid isn't one of them. So that gets kind of complicated with a different kind of trust. But that's the general you can look talk to a professional on that example of an irrevocable trust. So we've got David a Cutner an older law attorney with Lampson and Cutner PC offers an example of an irrevocable trust using New York state's rules that are slightly simplified. Okay, so suppose a person transfers $120,000 to an irrevocable trust enters a nursing home thereafter and applies for Medicaid. So they had 120,000 and they said, okay, I'm just going to put this into the trust. It's no longer mine and therefore I might be able to qualify for the Medicaid. That's my interpretation of it. So using Medicaid's regional rate of $12,000 per month for nursing home care in that geographic region, the penalty period of ineligibility can be easily calculated in the following way, the $120,000 transfer divided by the regional rate of $12,000 equals a 10 10 month period of ineligibility that so the penalty period starts when the person is in the nursing home has applied for Medicaid and is otherwise eligible for benefits that in New York, the look back period applies only to the nursing homes and not to assisted living or home care in other states. It may apply to all three. So it's important to check with check what the rules are for your state. So clearly the rules may differ from state to date state to state. So in some cases, the actual cost of nursing home care is higher than the Medicaid's regional rate. As a result, the out of pocket cost of nursing home care during the penalty period will be greater than the amount of the transfer that caused the penalty. That is where the next strategy comes in. So number four, gifting assets before elder care. So now we've got can I give away my assets? So another option would be to simply give the money to a responsible child or another relative. However, Cutner says that route can be far riskier. So once the money is transferred, it legally belongs to another person. So one of the reasons you might put something into a trust is because you're trying to get some kind of control over it. If you're basically saying I'm going to give money to another person, you could have gifting limits to they could, you know, come into play. But if you give the money to another person, then it's their their money at that point, obviously, and and and you don't have any more control over that point, which is kind of kind of risky. So you got to be able to trust the other person. So even if even if the person is totally trustworthy events in their own life, a divorce, a business failure, a lawsuit, their death could put the money in jeopardy. So in other words, if they have the money and they're subject to some kind of liability, like they get divorced or something like that. And you know, they're going to pay half half half goes whatever you know you could lose it or they get sued or something like that. Now the money being theirs might be subject to liabilities for whatever they do. So creating a trust instead can avoid these risks. So the Medicaid currently has a five year look back period. So if someone transfers assets into a trust and enters a nursing home more than five years later, the money and the trust will not be counted toward the Medicaid eligibility. However, if the money was transferred within the five year look back period, that will affect their eligibility for a certain period of time five set up an annuity. If a person needs to apply for Medicaid before the five year look back period is up, it still may be possible to prefer to preserve a significant portion of their assets by using a properly drafted private annuity or promissory note that complies with federal law according to Kuttner. So suppose the person in the example above transferred $60,000 into a trust and used the remaining $60,000 to purchase a private annuity prepared by an elder law firm. So now the annuity is something that you pay into and it's typically going to pay you back out a certain amount possibly based on your life expectancy, for example. So now you have an annuity which you can kind of value what the annuity is worth, but it's going to be paid out in a stream of payment. So the question is how are they going to value that with regards to your qualifications for the benefits. So the monthly annuity payments along with a person's social security and any other income could be used to pay the nursing home bills for the five months that the person was now ineligible for Medicaid, $60,000 divided by 12,000. So there would be no transfer penalty for the money used to purchase the annuity under the federal law. So it wouldn't affect the person's eligibility plus to fix $60,000 in the trust would now be preserved. So the person could also have transferred that same remaining $60,000 to someone in return for a promissory note with a similar $12,000 monthly payback period. So you could, you know, loan the money out with a promissory note in a similar kind of fashion to try to do the same similar type of thing. So as with a private annuity such as agreement would need to be structured by an elder law attorney to make sure it met Medicaid requirements. So obviously if you're going to do a strategy like this, you would want to talk to a professional to make sure that it's drafted in such a way that it's going to work. So using the annuity or promissory note strategy, many people can protect from 40% to 50% of their assets. Cutner says a high net worth individuals with say $1 million or more in assets are unlikely to benefit. For example, for someone transferring $500,000 to trust in a locale where the regional rate is $8,000, the penalty period would be greater than the look back period and might be longer than the person's nursing home stay. Six, pooling trusts. States differ in how they treat income for Medicaid purposes. In general, Medicaid recipient who is in a nursing home must turn over all of their income except for a small monthly allowance in order to defray the cost of care. If the person needs home care or lives in a continuing care retirement community, the state may consider any income over a certain limit to be excess or surplus and require that it go towards the cost of care in those instances. A pooled trust can protect some of that income. So with a pooled trust, the older person arranges further excess income to be paid to a charitable organization. The person no longer has control over the money but can submit bills to the charity for payment. So someone who is still living at home might use it for food and utilities, for example. This allows the person to defray everyday living costs that might exceed Medicaid's relatively low limits. Number seven, we've got the personal care agreements. A lump sum paid to a caregiver for future services may not be considered a penalized transfer if it is structured correctly. That can serve a number of purposes. One is to reduce the size of the estate so the person will be eligible for Medicaid. Another is to buy the older person some care beyond what Medicaid provides. This kind of personal care agreement can also help ease the financial strain on a child or other relative who has given up work and a sacrificed income in order to provide care. Often, Kuttner says, it can help prevent family rifts when the burden of caregiving falls disproportionately on a particular child. Such an agreement can also be used with an agency that provides home care services. Number eight, we've got the spousal transfer and spousal refusal. So a transfer of assets from one spouse to another is not penalized under Medicaid. So a common move is for a spouse who needs to go into nursing home to turn over other assets to their spouse. So now if you've got a married couple, you might be able to say, okay, one spouse is going to have the assets versus the other, which might be able to lower the threshold for the benefit. So even so, the spouse is still legally obligated to provide for the other spouse's care and their collective assets will be considered Medicaid eligibility purposes. So by signing a spousal refusal, however, the healthy spouse may be able to renounce that responsibility, making the other spouse immediately eligible for the Medicaid. So in other words, my interpretation of this would be that obviously if you're married, then you're kind of like one entity, one legal entity owning the assets for as a married couple, although that could, you know, that could differ between states, community property states and so on. But if you're able to come up to an agreement that the one spouse is controlling the assets, again, it usually comes down to, do you have control of the assets for a lot of these kind of issues? So if you're trying to say, I'm going to try to qualify by having my assets below a certain threshold and you try to do something like put the money into a trust or say that your spouse has it, if you still have the ability to have control over it, then that would kind of be the issue. If you have, if you were able to say that you don't have the control over it so much, then maybe then you would say, well, they're not actually your assets and you might be able to qualify would be my interpretation of that. So once again, by signing a spousal refusal, however, the healthy spouse may be able to renounce that responsibility, making the other spouse immediately eligible for Medicaid. So the documents usually prepared by a lawyer are sent and filed with the Department of Social Services after the documents are reviewed and each requirement for Medicaid is met. The state's healthcare program can begin paying for health services. Medicaid can attempt to collect reimbursements from the spouse at a later date, though Cutner says strategies are available that may lessen the impact. Even if Medicaid does collect, the couple is likely to benefit because Medicaid's reimbursement will be based on the discounted rate. It pays nursing homes rather than on the private payer rate. The couple would otherwise have to pay. This option is not available in every state. So make sure to check first. So what's the bottom line? If elder family members lack the funds to pay for the care that they need when they become mentally or physically frail, investigate these ways to help pay the bills without impoverishing the individual or their spouse. So obviously this is part of the long-term kind of planning that we could think about for ourselves and family members to reduce the risk mitigation. So healthy older adults should use this information to plan ahead for the care they might need in the future.