If Long Term Care (LTC) is needed, but not planned for, there are a number of options to make the money last longer or protect some of it. The best and least expensive way to handle this would have been to purchase LTC insurance while still healthy, preferably in your 40’s or 50’s. By the time we’ve hit 60, a fourth of us can no longer qualify to buy this insurance.
I’ll use a recent example where I was called in to a financial planner’s office as his client’s wife was about to exhaust her short duration LTC insurance policy. The client owns a cottage in addition to a house, $200,000 of IRA money in addition to $180,000 of non IRA investments. He owns a life insurance policy with minimal cash value and his wife has one where the cash value is only slightly less than it’s death benefit.
One of the children would like the cottage and may be able to purchase it. Medicaid does not allow two homes, only one, and it must be sold for fair market value so as not to be a gift and disqualify her from receiving Medicaid.
His life insurance policy with a very small cash value but a significantly higher death benefit would be a shame to lose per Medicaid’s requirements. One of their children could purchase it for fair market value (the cash value) and pay premiums to keep it in force until his death. Hers has cash value nearly the same as the death benefit so it could be surrendered and after paying any income taxes on the gain, the remainder could be used to purchase allowed items like plot, marker, vault, casket, etc. This would be in addition to the irrevocable burial trusts they already purchased.
In Wisconsin, the at-home spouse’s IRA accounts are not a countable asset (currently), so we can ignore those for now. This leaves him with some at risk assets, primarily money. If he were to fund irrevocable burial trusts for his children and their spouses now, he would only be allowed to keep half of remaining assets when Medicaid takes their “snapshot” of assets. If he waits until wife is on Medicaid, and the spend down amount is identified, then he can fund those irrevocable trusts for children and spouses of, while keeping his entire half for himself.
A house presents a timing issue as well. If the at home spouse decides to sell the house while spending down to Medicaid (prior to being on Medicaid), the sale price becomes an at risk asset that must be spent down. If the at home spouse waits until the institutionalized spouse is ON Medicaid, and then sells the house, those funds can be retained by the at home spouse.
As you can see, there are things that can be done to protect assets when someone needs LTC. Every situation is different. Knowing what can be done and when to do it can be very helpful. We often have family meetings to simply explain the Medicaid rules. While we can establish the irrevocable burial trusts for you, your children and their spouses, there are no fees for doing so at The Long Term Care Guy.
For more information, visit www.TheLongTermCareGuy.com or give us a call at (920) 884-3030.