Life expectancies are getting longer and longer. And, not coincidentally, the risk we will need long-term care (“LTC”) is greater than ever. An interesting article in Forbes discussed the likelihood of needing LTC. It examined the research and concluded that most people would need LTC at some point during their life. Needing LTC is not the exception, it is the rule.
This is not just an interesting point to ponder. LTC is a very expensive proposition that can torpedo a person’s financial plans. The average cost nationally of care in a nursing home is over $80,000 per year. The cost is even higher in Silicon Valley with an annual cost of a private nursing home room at $137,788 in San Jose. A recent study by Genworth Financial showed that the average cost of even in-home care is over $46,000 per year. Multiply the annual costs by the duration of the LTC need and you can quickly determine how this can put financial plans in great jeopardy.
How do individuals cover the cost? Most people think the costs are covered by Medicare. However, Medicare only pays a maximum of a few weeks of nursing home care and only under very limited circumstances after a qualifying hospital stay. There are a few ways a person can cover LTC costs. The first is LTC insurance. Unfortunately, only a small percentage of people have LTC insurance. Even LTC insurance is not unlimited and is typically for a specified daily dollar amount and for a specified duration, which may not cover the LTC needs. The next is private payment. This means you are paying out of you own pockets and depleting the assets which you and your spouse have worked a lifetime to accumulate. The next is Medicaid (known as Medi-Cal in California), the federal / state program for needy, disabled and elderly people. Medicaid pays the majority of LTC expenses, but only for those who qualify. Here is a fact sheet from the SCAN Foundation analyzing the source of LTC funds.
You can plan today to protect your assets from one of your biggest asset protection risks: LTC expenses. If you plan ahead, you do not have to impoverish yourself to qualify for Medicaid/Medi-Cal. However, if you do not plan ahead, you may have to pay those expenses out-of-pocket. If you attempt to qualify without planning ahead, you may impoverish yourself and still not qualify for Medicaid benefits.
The results may be even worse than that. The elder’s LTC expenses may even torpedo the financial plans of their adult children. Many states have “filial responsibility laws” which require adult children to pay the necessary expenses of their impoverished parent, which include LTC expenses. Here is a sidebar from Kiplinger regarding filial responsibility laws. Not every state with such a law enforces it, yet.
Health Care & Retirement Corp. of America v. Pittas is an example of how such enforcement may arise. In that case, John Pittas’ mother entered a nursing home for rehab after a car accident. She did not qualify for Medicaid and incurred a bill of over $92,000. The nursing home sued her son, John Pittas, under Pennsylvania’s filial responsibility law. The nursing home prevailed and got a judgment against him.
This may be just the beginning of a trend. The rules for qualifying for Medicaid became significantly more complicated and tighter after passage of the Deficit Reduction Act of 2005 (“DRA”). DRA instituted a 5-year lookback for gifts, among other changes (California has not fully implemented the DRA – Medi-Cal currently has a 30-month lookback period). Thus, more elders could face LTC expenses without either being qualified for Medicaid or the means to pay those expenses out-of-pocket. This leaves providers looking to others to pay their bills, including the adult children.
It is in the interests of both elder clients and clients with elderly parents to plan for the LTC expenses which they might incur. Planning ahead can keep the financial plans of the elder and their adult children intact.
The attorneys in our firm are experienced in all aspects of estate planning. As a member of the American Academy of Estate Planning Attorneys, our firm is kept up-to-date with information regarding all types of estate planning strategies and tools. We invite you to attend one of our free Medi-Cal Planning Workshops to learn more about the importance of Medi-Cal Planning for California residents.
