How Prenups Fail When Long Term Care Is Needed

More second marriages (65% to 70%) than first marriages (60%) end up in divorce.  This is very important for financial advisors to consider when helping married couples plan.  Often two families blended together may have very different expectations for their money when one partner dies.  But do you consider the impact if one of the couple becomes disabled and requires long term nursing care?

Most people don’t want to consider or talk about the need for care in later life.  Perhaps if you don’t talk about it, it won’t happen.  Or they may think that the federal government pays for long term care through the Medicare program.  Medicare is health insurance and will not pay for long term care.  Even if Medicare did pay for long term care, 40% of all long term care in America is delivered to people between the ages of 18 and 64.

Say your client is considering a remarriage and wants to protect the $3 million dollar estate she brings into the marriage.  If you think a prenup will be sufficient to protect the asset, you are not considering the possibility of a stroke, Alzheimer’s, or arthritis causing a need for long term care.  Many people think that a prenup means your spouse cannot access your funds that are “protected”.  While that is technically correct, Medicaid, the federal welfare program that will pay for long term care once a person is impoverished, does not honor a prenup.  Thus if that new spouse suffers a stroke at the wedding reception, the prenup will do nothing to prevent your client from the $96,000 a year nursing home bill.

Medicaid, funded by a combination of state and federal dollars, is only available when someone is both needing care and impoverished.  Rules vary from state to state, but in general you may retain only $2000.  That means the checking, savings, IRA, 401K, stocks, bonds, mutual funds, annuities, home, auto, etc., must be spent down to this level.  A married spouse living at home can retain certain items like the home (with a lien building up against it), one vehicle, one half of the savings (to a maximum of $115,920), and some income.  Unfortunately, Medicaid does not honor the prenup meaning nearly all assets are at risk, and you are gambling on the health of the new spouse.

The moment you sign that license you are responsible for the long term care costs of your spouse.  It does not matter if it is a first or third marriage.  Nursing homes commonly run $8000 a month, based on seeing actual bills.  Assisted living facilities cost half or less, and home care can be much less or much more depending on how much is needed.

Many of my clients come to me to obtain long term care insurance prior to signing the marriage license.  Some of these people are still healthy enough to qualify to purchase it.  Passing underwriting is becoming more difficult as the long term care insurance companies are tightening health requirements.  We are living longer, medical science is keeping us alive after medical emergencies that used to kill us, and interest rates are very low.  Many companies have stopped offering the product because of the 5% compound inflation factor on the daily or monthly benefit while they earn only 3.2% on their assets.

Long term care insurance needs to be investigated and purchased while in the 40’s and 50’s.  So what do we do with our uninsurable wealthy clients considering a marriage?  You may want to create an alliance with a specialist in long term care financing who may have other strategies to deal with the costs of long term care.  We cannot be specialists in all areas of our practice.  We do need to be aware of all the problems that can arise, and not assume a prenup will cure all the possible ills.

If you are investigating LTC financing for yourself or for your clients, call me at 920 884-3030 or 800 219-9203  www.TheLongTermCareGuy.com

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