Funding Long-Term Care Without Draining Your Estate
Start Now, Before Your Options Become Limited
Good news: Thanks to medical advances in the
past few decades, you - and your parents, if they're still alive -
will probably live longer than previous generations.
Bad news: The cost of living in a nursing home
for a year, now averaging around $51,000, will triple over the next
20 years, according to the General Accounting Office. So will the
cost of other long-term care (LTC) - such as assisted living and
skilled home care.
Start planning now if you want to be sure that you can afford
the care you'll need as you age - without depleting the wealth that
you hope to leave to your heirs. Most important, decide whether you
can afford to fund LTC out of your personal assets or whether to
buy LTC insurance to cover it. If you choose insurance, you'll have
to decide whether to start paying premiums now or wait until you're
older. Coverage LTC insurance typically covers a broad range of
services other than hospitalization - including nursing-home care,
assisted living, in-home healthcare and, sometimes, adult day care.
(Your health insurance will still cover hospitalization and
The choice between self-funding and LTC insurance depends on
- Financial situation (disposable net worth and income)
- Health condition
Net Worth and Income
Let's look at each of these factors individually.
If your disposable net worth is more than $3 million ($6 million
for a couple), then you may be able to cover the cost of LTC out of
the interest and dividends that you earn and preserve the principal
for your heirs. Keep in mind that the cost of LTC varies from place
to place and according to the level of care you'll need. So check
out the costs in your area before you determine that your net worth
is sufficient to cover them. If you don't think you'll be able to
fund long-term care on your own, consider buying insurance for it.
Just be sure you can afford the premiums without compromising your
living standard. (Depending on your adjusted gross income, you may
be able to fully or partly deduct qualified LTC insurance premiums
as a medical expense.)
Those with low income and net worth may qualify for Medicaid
assistance to help pay for LTC. Levels vary from state to state,
but you generally cannot have more than $2,000 in assets -
excluding your primary residence and basic necessities - to be
eligible for Medicaid. Some people try to qualify for Medicaid by
giving away assets to relatives, but this strategy requires
long-term planning because of strict transfer eligibility rules.
For example, any assets that you give to another person within
three years - or transfer to a trust within five years - before
applying for Medicaid will be included in your total assets for
Age and Health
The younger you are when you buy LTC insurance, the lower your
monthly premiums. Those starting at age 60, for example, can cost
more than twice as much as premiums for the same coverage starting
at age 50. And if you're 84 or older, you'll have a hard time
buying any LTC coverage at all. Likewise, if you're in poor health,
you may have a hard time obtaining LTC coverage. As with any kind
of insurance, you can't wait to buy it until you need it.
Of course, the younger you start coverage, the longer you pay
premiums. And LTC policies written decades before you need it may
not be flexible enough to meet changing care standards. As a rule
of thumb, the ideal time to buy LTC coverage is between ages 50 and
60 - but closer to 50 if your income can easily cover the expense.
Many Options LTC insurance varies widely in coverage, premiums,
exclusions, inflation protection, duration of benefits and other
provisions. So investigate your options carefully before choosing.
We will be happy to help you decide how to fit LTC plans into your
overall estate plan.