Many of our clients of retirement age, or nearing retirement age, are concerned about how they will pay for long-term care should they ever have a need for such care. In 2013, the average annual cost of a semi-private room in a skilled nursing facility in Indiana was $71,175.00, and so this concern is well-founded (https://www.genworth.com/corporate/about-genworth/industry-expertise/cost-of-care.html). The following are some frequently asked questions with responses from DeFur Voran’s Elder Law Group, which are meant to serve as a starting point for a more in-depth analysis of a specific situation.
1. What are my options for paying for long-term care?
- Long-term care insurance – if you had the foresight to purchase such a policy prior to retirement, this is probably your first option for payment. However, purchasing a policy becomes cost prohibitive, and eventually impossible, as you advance in age.
- Private pay – an option for those with enough income and/or assets to afford long-term care.
- Medicare – Medicare is available to U.S. citizens and permanent legal residents age 65 and over who have worked long enough to be eligible for Social Security or railroad retirement benefits. Unfortunately, when it comes to the services provided by a skilled nursing facility, including a semi-private room, skilled nursing care, meals, and therapy, Medicare Part A will only pay 100% of these costs for the first 20 days, and only if you had a 3-day inpatient hospital visit within 30 days before admission to the skilled nursing facility. From days 21-100 at the skilled nursing facility, you are required to pay $152.00/day (2014 amount) in coinsurance before Medicare will pay for the skilled nursing facility. From days 101 and beyond, Medicare will not pay for skilled nursing services, unless you have a break in skilled care that lasts more than 30 days and then you are readmitted to a skilled nursing facility after another 3-day inpatient hospital visit.
- Medicaid – For those without long-term care insurance benefits, who cannot afford to privately pay for a long-term care, and who stay in a skilled nursing facility for more than 20 days, Medicaid may be their best option for payment. Medicaid is an entitlement program with asset and income requirements. Those with income and/or assets greater than the Medicaid eligibility threshold, but less than enough to pay privately can consult with an Elder Law Attorney at DeFur Voran to discuss strategic planning options.
2. Is the nursing home going to take my home if I cannot pay for long-term care?
The short answer to this question is no. As explained in the answer to FAQ #1, for those without the means or long-term care insurance to pay for long-term care, applying for Medicaid may be their best option. Real estate is oftentimes an exempt asset in a Medicaid eligibility determination, including a home in which certain family members reside, income-producing real estate, certain jointly-owned real estate, burial plots, real estate used to produce food for home consumption, and real estate owned by a spouse not in a skilled nursing facility when the other spouse is in such a facility.
If a piece of real estate is not an exempt asset under any of these scenarios, then a Medicaid applicant can offer it for sale or rent at current market value as a condition of receiving Medicaid.
3. Should I give away assets now to reduce my assets and protect the gifted assets in case I later need Medicaid benefits to pay for long-term care?
If you do not have an immediate need for long-term care, a gifting strategy as part of planning for Medicaid eligibility in advance should only be done with caution and with an Elder Law Attorney’s guidance and assistance. There are many reasons to proceed with caution, including:
- The rules for Medicaid eligibility, and the extent of Medicaid benefits, may change.
- When you give property away, you lose ownership and control of your property. If you need the property back, the person to whom you gave the property (“donee”) has complete discretion on whether to grant your request for a return of the gift.
- The gifted property will become subject to the claims of the creditors of the donee.
- If the done is involved in a dissolution of marriage proceeding, the gifted property is a part the marital estate to be divided by the court between the donee and the donee’s spouse.
- If the donee dies, the gifted property will be distributed as part of the donee’s estate.
- Giving away property disqualifies the property from receiving a stepped-up basis upon your death for purposes of income tax on capital gains.
- While giving away up to $14,000/year (2014 annual federal gift tax exclusion) to each recipient may be a useful planning tools from a federal estate tax perspective, Medicaid eligibility rules do not allow for such a large annual exclusion. Medicaid allows an annual total gift of $1,200, and it must be to certain family members or a non-profit organization. Gifts that do not qualify for this annual exception will result in a transfer penalty for Medicaid applications filed within five years of the gift.
Despite all of these risks, gifting assets to protect them before there is an immediate need for Medicaid eligibility can still be advantageous in certain situations. DeFur Voran LLP Elder Law Attorneys are available to assess your situation and discuss your options.