FUNDING LONG-TERM CARE
By Tim Barkley. June 2014.
Long-term care. Nursing homes. Adult daycare. Resented symbols of helplessness foisted on a generation of Americans who all their lives have prided themselves on self-sufficiency and independence.
No one wants to think of herself helpless and dependent, for an indeterminate time powerless and vulnerable in the hands of others. Sometimes family can rally ‘round and care for the frail elder parent, but even then a two-income family economy can force dependence on professional care providers.
By taking steps to assure that the costs of care can be met, you can assure that you can still control the setting in which you receive care. You can retain power over your life even as you are cared for increasingly by others.
Long-term care is costly. And one out of two Americans will need it. The average monthly cost for skilled nursing care in our area is over six thousand dollars. The average stay, for those who stay over ninety days, is from two to three years, so the average local cost of a nursing home stay is approximately $150,000 to $225,000. The average local Alzheimer’s stay costs over $600,000.
Since this article was first published in 2004, these costs have risen by 50%. If this growth continues, the cost of long-term care will be absolutely staggering – if not overwhelming already – in another 10 years.
There are three ways to pay.
First, you can pay from your own assets. If you have adequate resources, you can pay out of your own pocket. You can self-insure. For most families, this is not a viable option. The only asset of that magnitude is usually the house, and folks are reluctant to part with their home – especially when the well spouse is living there. Even folks that can afford to pay out-of-pocket are often reluctant to bear the full burden.
Second, you can depend on the government, and plan to qualify for Medicaid, the federal medical welfare program. If you are truly indigent, this program is for you. It is our public policy not to allow our frail elderly to die in the streets, and so we, the taxpayers, have agreed to pay the cost of care. If you are not indigent, this program is not for you. The government, strapped by budgetary woes, is working to eliminate your ability to access this program by voluntarily impoverishing yourself. Having worked all your life to avoid being poor, do you really want to end life voluntarily surrendering to poverty?
Third, you can insure against the cost of long-term care and shift the risk of that cost onto an insurance company. You can even buy a policy that provides for a refund of your premiums if you do not use the policy. There are policies that can tap your IRA balance to fund long-term care; policies that can be paid for life, for a period of ten years, or in a single premium; and long-term care provisions that are included as riders on life insurance or annuities.
You can pay out of income or by liquidating securities. You can access the equity in your home through a reverse mortgage to pay for the cost of long-term care, without capital gains or income tax cost. However you fund it, the cost must be paid.
Make sure your plan for long-term care is coordinated with your estate planning documents – your will or trust, and your powers of attorney for health care and for asset management. Now, while you are healthy, make sure these documents are up-to-date and drafted in accordance with your wishes.
If your plan is to self-insure against this risk, be sure your agent under power of attorney and the trustee of your living trust, if you have one, knows what to liquidate first and how to invest the proceeds. If you have a policy of long-term care insurance, make sure these folks know about it. The irony of liquidating assets to pay a cost against which you have already insured can’t be overstated.
Plan now how you will retain control and the direction of your own life.
Attorney Tim Barkley
The Tim Barkley Law Offices
One Park Avenue
P.O. Box 1136
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