Planning for long term care costs can be one of the most important ways to protect your estate.
Medicaid is a combined federal and state program that provides medical benefits to low income applicants. While Medicaid encompasses a number of programs for a wide variety of people, in the context of elder law, when we talk about Medicaid we are usually talking about having Medicaid cover the costs of long term care for seniors.
Usually the first question most clients have when they hear about Medicaid planning is "Why do I need to know about a program for low income applicants?" The answer to this question can take a little bit of explaining, so let's talk about a hypothetical example.
Let's consider the example of Sam and Dorothy. A married couple, Sam is 78 and Dorothy is 74. They are retired and have children and grandchildren. They have the following assets:
1. A condominium valued at $230,000 which they own outright, without a mortgage.
2. Checking and savings accounts totalling $45,000.
3. A brokerage account worth $180,000.
4. Sam has an IRA with $85,000.
5. Sam receives social security in the amount of $2,200 per month. Dorothy receives $1,200 per month.
6. Both have Medicare, but no Long Term Care Insurance.
Now let's consider what would happen if either Dorothy or Sam had to enter into a nursing home. In order to do that, we would need to acknowledge a few important facts about how nursing home care works.
To begin with, nursing home care can be expensive. A Genworth Financial study estimates the average cost of nursing home care in the Washington DC Metropolitan area at between $10,539 and $11,718 per month. The National Care Planning Counsel estimates the average length of a nursing home stay to be 835 days (well over two years). It is also estimated that between 50% to 70% of adults over age 65 will require long term care at some point in their lives.
If we use these just the averages, Dorothy and Sam can be looking at a potential nursing home stay of over two years, with a total potential cost in excess of $281,000. Obviously if circumstances go beyond the average, the cost can be significantly greater.
The next question becomes, how will Dorothy and Sam pay for this care. Ultimately, just like everyone else, Dorothy and Sam will have three options. They can: a) pay the costs out of pocket; b) they can use long term care insurance; or c) they can have Medicaid cover the costs.
Let's examine a couple of these options. Most Americans do not have long term care insurance. And for those that do, they may find that there are a lot of circumstances where long term care insurance may not fully cover costs like the one that Dorothy and Sam are facing. So if long term care insurance is an option for covering these costs, then there is no need to go any further.
As noted previously, Medicaid will cover long term care costs. However it will only cover these costs for applicants who financially qualify. Remember, that Medicaid is a program for low income applicants. Specifically, in Virginia, for Medicaid to start covering long term care costs, an applicant must have no more than $2,000 in "countable" assets. However, Medicaid rules to permit a "community spouse" (the spouse who is not in nursing home care) to retain a certain amount of assets (at present, this amount is $123,600).
In Dorothy and Sam's case, this means that they would need to liquidate their assets to pay the monthly cost of nursing home care until their assets are below the Medicaid income qualification limits. Depending on the length of the nursing home stay, paying nursing home care costs in this way could have the effect of eliminating most of the assets that Dorothy and Sam spent a lifetime saving.
Medicaid planning is simply the process of implementing strategies to preserve as many assets as possible while still permitting an applicant to qualify for Medicaid assistance.
The planning strategies used to do this can be very complicated and it is always advisable to retain competent legal advice before implementing any Medicaid planning strategy. If planning for Medicaid qualification is a potential issue for you or a loved one, contact our office to schedule an appointment to discuss your case and how we might be able to help.