We are all reluctant to think about the need for long-term care or the costs associated with it. We all want to believe that our families will have the time, resources, and ability to care for us until the end, and that we’ll be able to pass peacefully at home. But that happens less than we’d like to imagine, as an increasing number of people over the age of forty refuse to believe they will ever need long-term care.[1] The reality is that 70% of Americans over the age of 65 will eventually need some type of long-term care.[2]  As the population continues to age, the number of people over the age of 65 will continue to grow. A large number of people refuse to plan for something that a majority will need. We gamble on being a member of the 30% who will not need long-term care. This is an unnecessary risk given the actual cost of long-term care.

The actual costs for long-term care are staggering. Genworth Financial, states that for Houston in 2015, the average annual bill for a nursing home is approximately $83,038 and for home health care, approximately $44,616 with a variety of options among and in between these levels of care.[3]

How are those who will need long-term care supposed to pay for this care? Most people do not know because they have never really looked into it. People assume Medicare or private insurance will cover these costs.[4] But they don’t. 

Though it is possible to purchase long-term care insurance to help cover the cost of long-term care, not everyone will be able to purchase it or the available policy may not fully meet your needs. The truth is Medicaid is the largest payer of long-term care services.[5] Medicaid is a federally and state funded needs-based benefit that will provide for various types of long-term care depending on the state’s regulations. Because Medicaid is needs-based, a person needing long-term care has to exhaust all their income and savings to qualify. This means that everything you’ve worked for to pass on to your spouse and family gets eaten up by the costs of long-term care, unless you’ve planned for it.

With proper planning, a person needing long-term care can access the care they need without leaving their loved ones holding the bag. There are many planning options to help. 

Here are two different scenarios that help explain how planning works.

The Facts

David is 72 and Linda is 69. They have been retired for several years and enjoy traveling to visit their children and grandchildren who live in nearby states. During a recent visit, their oldest child asked them whether they had made plans for long-term care in the event one of them became ill. As David and Linda were in good health, they had not given this much thought. They decided to see someone who could let them know what options they had.

David and Linda own a home that they have lived in since their marriage 45 years ago, and they have checking, savings and CD accounts that total $250,000. They both worked most of their adult lives, watched their expenses and never spent money on luxury items they didn’t feel were necessary.

Scenario #1 – David and Linda planning ahead. David and Linda spoke with an elder law attorney because they knew they should also update their wills and their powers of attorney. While there, they learned that they could actually plan now to avoid running out of money in the future should they need long-term care either at home or in a facility. With the help of their elder law attorney, they placed $150,000 and their home into an irrevocable trust, and named their children as beneficiaries of the trust. If needed, their children would be able to take a distribution from the irrevocable trust rather than using their own money for David and Linda’s needs.

The remaining $100,000 would be kept in a revocable trust that David and Linda would use for their living and travel expenses. Though David had been previously denied long-term care insurance, Linda would apply for a long-term care insurance policy to provide further protection for them should her health fail. After 5 years, the $150,000 placed into the irrevocable trust would not be counted against them should either of them need long-term care and the assistance of state benefits to pay for it.

Sadly, seven years later David had a severe stroke and needed to be placed in a nursing home. At first, Linda tried caring for him at home but was simply unable to. Linda went back to see the elder law attorney for help. Because of the planning that David and Linda had done with their elder care lawyer, Linda was able to keep all of the remaining cash assets in their revocable trust and David was able to qualify immediately for state Medicaid benefits. The irrevocable trust (which had now grown to $175,000) remained in place but did not count against David since more than 5 years had passed and neither David nor Linda had any direct access to the trust assets. 

Linda’s mind was at ease knowing that she did not have to worry about paying for David’s care and could instead focus on visiting him and providing as much support as possible. In the future, if Linda also requires long-term care and her long-term care insurance does not cover all of her required expenses, the planning David and Linda did allow their children to care for Linda as well. She has piece of mind knowing their children continue to manage the irrevocable trust and are ready to help both Linda and David as needed.

Scenario #2 – David and Linda without planning ahead. Let’s assume David and Linda did not plan ahead. When David had a stroke at age 78, the couple had $300,000 in checking, savings, and CDs. Under the Medicaid regulations in place at the time, Linda was able to keep $120,000 of the assets, but the majority of the remaining assets had to be used for David’s care. While their home would be protected since Linda was still living there, if she were to become ill the home could be subject to a lien by Medicaid.

It took more than two years to get David qualified for Medicaid, and the process was incredibly stressful for Linda and her children. Furthermore, no planning has been done for Linda and if her health fails, their remaining assets are at risk.

Odds are you or a loved one are going to need long-term care. Even though it is a difficult discussion to have, planning can make all the difference for you and your family.