Life expectancies are getting longer and longer. And, not coincidentally, the risk we will need long-term care (“LTC”) is greater than ever. An interesting article in Forbes discussed the likelihood of needing LTC. It examined the research and concluded that most people would need LTC at some point during their life. Needing LTC is not the exception, it is the rule.
This is not just an interesting point to ponder. LTC is a very expensive proposition that can torpedo a client’s financial plans. The average cost nationally of care in a nursing home is over $80,000 per year. A recent study by Genworth Financial showed that the average cost of even in-home care is over $46,000 per year. Here’s a link to a story in Forbes about the Genworth Financial study. Multiply the annual costs by the duration of the LTC need and you can quickly determine how this can put financial plans in great jeopardy.
How do clients cover the cost? Most people think the costs are covered by Medicare. However, Medicare only pays a maximum of a few weeks of nursing home care and only under very limited circumstances after a qualifying hospital stay. There are a few ways clients cover LTC costs. The first is LTC insurance. Unfortunatley, only a small percentage of people have LTC insurance. Even LTC insurance is not unlimited and is typically for a specified daily dollar amount and for a specified duration, which may not cover the LTC needs. The next is private payment. This is your client paying out of their own pockets and depleting the assets which they and their spouse have worked a lifetime to accumulate. The next is Medicaid, the federal / state program for needy disabled and elderly people. Medicaid pays the majority of LTC expenses, but only for those who qualify. Here is a fact sheet from the SCAN Foundation analyzing the source of LTC funds.
Clients can plan today to protect their assets from one of their biggest asset protection risks: LTC expenses. If they plan ahead, they do not have to impoverish themselves to qualify for Medicaid. However, if they do not plan ahead, they may have to pay those expenses out-of-pocket. If they attempt to qualify without planning ahead, they may impoverish themselves and still not qualify for Mediciad benefits.
The results may be even worse than that. The elder’s LTC expenses may even torpedo the financial plans of their adult children. Most states have “filial responsibility laws” which require adult children to pay the necessary expenses of their impoverished parent, which include LTC expenses. Here is a sidebar from the New York Times regarding states with filial responsibility laws. Not every state with such a law enforces it, yet.
Health Care & Retirement Corp. of America v. Pittas is an example of how such enforcement may arise. In that case, John Pittas’ mother entered a nursing home for rehab after a car accident. She did not qualify for Medicaid and incurred a bill of over $92,000. The nursing home sued her son, John Pittas, under Pennsylvania’s filial responsibility law. The nursing home prevailed and got a judgment against him.
This may be just the beginning of a trend. The rules for qualifying for Medicaid became significantly more complicated and tighter after passage of the Deficit Reduction Act of 2005 (“DRA”). DRA instituted a 5-year lookback for gifts, among other changes. Thus, more elders could face LTC expenses without either being qualified for Medicaid or the means to pay those expenses out-of-pocket. This leaves providers looking to others to pay their bills, including the adult children.
It is in the interests of both elder clients and clients with elderly parents to plan for the LTC expenses which they might incur. Planning ahead can keep the financial plans of the elder and their adult children intact.
The attorneys in our firm are experienced in all aspects of estate planning. As a member of the American Academy of Estate Planning Attorneys, our firm is kept up-to-date with information regarding all types of estate planning strategies and tools. You can receive more information about a complimentary review of your estate plan by calling Chip Morrison at (504) 831-2348.