It’s rare that we have a consultation with someone when the subject of nursing home, or “long term care” planning, doesn’t arise. Rightfully so – the average out-of-pocket cost for nursing home care in New Hampshire is about $11,000 per month. With the average nursing home stay lasting approximately 3 years, it’s likely to cost $400,000 for your long-term care. And that’s based on today’s numbers – it’s going to be even higher 10 or 20 years from now.
So how do you go about planning for such an expense? As I explain to most people, there really is no simple solution to the problem. But the potential of lost assets to long-term care costs being so high (about 60% of people require skilled nursing care in old age), it could make your well-intentioned estate plan worthless.
There are, generally speaking, three possible ways to tackle the long-term care quandary: (1) long term care insurance, (2) life insurance with accelerated death benefits, and (3) asset protection trust planning.
Long term care (LTC) insurance is probably the best option for individuals under the age of 65 with a net worth of $1.5 – 3 million. The reason for the limitation of net worth and age is due to the cost of the coverage compared with what you receive. Unfortunately, the cost of LTC premiums have skyrocketed while the benefits have been cut back. As a result, these policies are cost prohibitive for more modest families. But for those with more substantial assets or high income, it can make sense.
Universal life insurance with accelerated benefit riders are often a better choice for more wealthy families, of net worth above $3 million. These riders allow the death benefit of the policy to be advanced to the owner during their lifetime, often up to 100% of the policy face value, for paying the costs of assisted living or skilled nursing care. Although the premiums for the policy may be high ($12,000 per year or more), they can be used for long term care costs, and also pay down estate taxes. Plus, the policy can become a source of supplemental income for the owner during their healthy years, as they can always elect to take a loan against the policy.
A third, and more common approach, is to utilize asset protection trust planning. While many people often think that only the very wealthy benefit from trust planning, in our experience, it’s the people with lesser means that have more to lose – and therefore, need more protection. For individuals and families with a net worth under $1.5 million, a Medicaid Asset Protection trusts can protect assets from Medicaid spenddown or estate recovery. These trusts, which are irrevocable, can be used to hold certain assets that Medicaid would otherwise expect families to liquidate or spend before being approved for benefits. There are some important restrictions when using these Medicaid trusts, especially the 5-year look back period on the trust’s funding. Plus, these trusts shouldn’t hold certain types of assets such as IRAs or Roth IRAs.
Given the many complexities of long-term care planning, it’s critical that families engage in this planning early – ideally, just before or at retirement. While there is no silver bullet that completely avoids the long-term care quandary, smart planning with your lawyer and financial professional can maximize your protection. If you’d like to learn more, visit Beaupre Law online or give us a call!