Both of my parents will need long-term care soon, and my family is wondering how to best pay for it. We're worried about running out of money over the next six to 12 months. They're not on Medicaid right now, but they have a house that's been put in a trust for only three years, and their children are named as beneficiaries. Will we need to sell the house, or can they get a reverse mortgage to pay for their long-term care? Will they need to sign up for Medicaid?
be seen: Should I claim Social Security — or wait and live beyond my 401(k)? How do I make this decision?
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Dear reader,
I understand how stressful and complicated this is, especially considering all the moving parts in your particular situation.
It may seem like there's nowhere to turn, but you still have some time to make plans with and for your parents – something not everyone has. However, there may not be a lot of options outside of Medicaid, but get the information before A riskier scenario arises that gives you an advantage.
I say this because Medicaid spends a significant amount of money on long-term care services. Only 6% of Medicaid enrollees needed long-term services and supports in 2020, but those expenses accounted for 37% of federal and state spending for the program, according to KFF, a nonprofit organization focused on public health and policy. This expenditure included home and institutional care.
What we're getting at now is finding the best way to provide your parents with the care they need, and protect some of their assets.
“You never want a family to run out of money,” said Brian Tully, founder and managing partner at Tully Law Group. “You always want them to have some money left over, whether it's a retirement account, proceeds from a reverse mortgage they passed on to their kids or a good spouse. You always want access to money.”
“Spending everything is a mistake,” he added.
““Spending it all down is a mistake.”“
As far as selling the home is concerned, this should be a last resort. Even if your parents end up on Medicaid, a home is an asset they don't have to give up while they're alive. Medicaid rules vary from state to state, but in New York, for example, the primary home is exempt from gross assets while the individual receiving care lives there, or intends to return there after a period in a nursing home. This can apply to other states as well (Florida is another example).
However, there are restrictions on other assets. These numbers also vary by state, but you can imagine that the value of the home will exceed these limits. If you were to sell the house, this is exactly what you would be putting at risk.
A reverse mortgage works in a similar way. You can get money from a reverse mortgage in one lump sum, or regular fixed monthly payments, but this again could disqualify your parents from Medicaid eligibility — or require them to spend those assets faster than they would otherwise. Find a qualified, trustworthy real estate or elder care attorney who can help you understand the specific rules in your state.
Carefully examine the “look-back periods” in your state for home care or nursing home care, Tooley said. The review period is the amount of time Medicaid will use to verify financial transactions that preceded an application. He added that in New York, nursing homes have a 5-year review period, while home care currently has none (which is rare).
Be aware of the laws and proposals surrounding these rules. For example, former New York Governor Andrew Cuomo signed a law stating that New York would provide a two-and-a-half-year review period for home care, but that legislation was paused because the pandemic began soon after. It is now scheduled to begin as early as April 2024.
This review component is crucial to that trust your parents have. Just because assets are in a trust does not make them safe from Medicaid. If it is an irrevocable trust, for example, it is considered a gift and is subject to review periods. Even when a home is exempt due to a qualifying trust, there are still other Medicaid eligibility requirements, including income and other asset limitations.
Punishing Medicaid applicants
Medicaid applicants will be penalized if they have assets that fall within the lookback period. This is also done on a state-by-state basis, but basically Medicaid will not pay for a set period of time based on the value of those assets. Meanwhile, people in need of care — your parents, in this case — would need to pay privately, which would drain their savings. A real estate or elder care attorney can help you here as well.
Keep in mind that Medicaid may eventually look to reimburse you for what it paid for long-term care, once both spouses die. This is known as “estate recovery,” and also varies on a state-by-state basis. States may place a lien on an estate, or try to take money from a trust after the death of a Medicaid beneficiary (or beneficiaries, in this case), according to Medicaid.gov. There are protections in place so that this repossession process does not cause “undue hardship” to families, and the repossession process applies to assets in probate estate (although again, rules vary by state).
Beneficiaries should be made aware of these conditions and understand that part of their inheritance could be affected by their parents' need for long-term care services. By being honest about this possibility, beneficiaries can plan for the future, so their retirement security is not compromised in the future.
Regardless of how you handle this scenario, start now researching the best long-term care options for your parents, as well as how much they could cost in their area. These numbers will vary widely by state, or even by county. The national average monthly cost for a semi-private room in a nursing home was nearly $8,000 in 2021, according to Genworth's Cost of Care Survey, and that number jumped to more than $9,000 for a private room. By comparison, the study found that assisted living facilities cost an average of $4,500 per month, and 44-hour weekly home health care aides cost more than $5,100 per month. You can check the average cost in your area on a monthly, daily, hourly or annual basis on the Genworth website, as well as estimate future costs,
Get serious about finding a facility — or a professional if you choose the at-home option — now, even if you don't think your parents will need anything for another year or two. The search can be daunting, as can the process from the moment you begin your search to the time the individual begins receiving care. Clearly confirm that these places accept Medicaid, apply and wait for a spot to open.
I know it's a tough situation, but you can do it one step at a time, one day at a time.
See also: I have about $3 million in pensions and savings. Should I claim Social Security before age 70?
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Do you have a question about your retirement savings? Email us at HelpMeRetire@marketwatch.com
