How to Budget for Long-Term Care Expenses

By Daniel A. Perry, Esq.

When families acknowledge the fact that they need to budget and plan for long-term care expenses, it is usually the result of a terrible experience involving their loved ones. I have heard all the stories in my practice of helping families navigate these complex legal issues.

Typically, the story begins in one of three ways:

  • A loved one is getting on in years and is starting to forget things he/she used to remember.
  • A loved one had a recent fall and the family decides it would be best for him/her to move into an assisted living facility.
  • A loved one experiences a serious illness and the family has concerns about allowing them to remain in their home by themselves.

Usually, as the family begins to look for a long-term care facility, they are shocked to learn that the average price is $6,000 to $10,000 per month. The family knows that mom or dad have about $150,000 in savings and their home equity. The family does some math and realize that mom or dad only have enough money to last 15 months in the long-term care facility.

The family speaks with the case worker who indicates that after 15 months, mom or dad will need to apply for Medicaid in order to stay in the nursing facility. The family spends down mom or dad’s $150,000 and then goes on Medicaid. A few years later, the family’s loved one passes away.

The family speaks with an attorney to assist them with settling their loved one’s final affairs. The family discovers that there is a Medicaid lien worth $150,000 and Medicaid is seeking reimbursement of the expenses paid on their loved one’s behalf while he or she was in the long-term care facility and will be seeking reimbursement from the sale of the home.

The family came to terms that their loved one had their home and a modest amount of personal property, and the sale from the home would be approximately $300,000. However, the family will first need to pay the $150,000 lien and $12,000 in attorney’s fees in order to settle the estate. In the end, the family is left with an estate of $138,000.

Unfortunately, this story is way too common. The reason the family suffered in this way is that their loved one failed to engage in long-term care planning earlier in life.

In general, there are three ways to pay for long-term care:

  1. Obtain Long-Term Care Insurance or Life Insurance with a Long-Term Care Rider to Pay for Long-Term Care
  2. Private Pay at $6,000 to $10,000 per Month
  3. Rely on Medicaid Assistance and Deal with the Potential of a Medicaid Lien Upon Your Estate

Luckily, there are a variety of legal strategies you can pursue which can protect your assets in the likely event you will require long-term care in the future.

Strategies for Long-Term Care Expenses

The first strategy is referred to as an Irrevocable Medicaid Trust. This is a legal strategy where you can protect your assets from spending them on your future nursing home costs by transferring them to an Irrevocable Medicaid Trust. This will also protect those assets from a future Medicaid lien.

In order to qualify for Medicaid, you generally can own no more than a primary home with less than $572,000 in equity, one car, and $2,000 in extra assets. In addition, you can also receive no more than $2,250 in income per month. This puts individuals in the situation of having to spend down all their assets to these limits on long-term care costs before qualifying for Medicaid assistance. Following this spend down, family members will lose a substantial portion of your estate due to the enforcement of a Medicaid lien.

However, with an Irrevocable Medicaid Trust, the assets in which you transfer to this trust are shielded from Medicaid spend down and shielded from any future Medicaid lien.

There is an important rule. You must fund this trust with your assets at least five years before applying for Medicaid. Therefore, you should make plans to take full advantage of this type legal strategy.

In addition to irrevocable trusts, there are other strategies including exemption planning, annuities, and more complicated trust structures. Each of these strategies can assist you or a loved one with long-term care planning.

For more information

As you can see, Medicaid Planning and Long-Term Care Planning is complex and should not be undertaken without first speaking with a qualified and experienced estate and elder law attorney. If you have questions, please contact our office at (513) 241-0400 or use our contact form to schedule a time to discuss how we can help your family.

The attorneys at Aronoff, Rosen & Hunt, LPA are here to help you!