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Creative Financial Approaches to Long-Term Care Planning

As long term care insurance has become unaffordable for many

Long term care insurance was sold aggressively in the 1980’s, 90’s and thereafter to offset the costs of seniors needing to live in a nursing home or assisted living facility, or needing at-home health care. Now, however, the business of long term care insurance has dramatically changed. What was once over 100 insurers providing long term care policies for sale has shrunk to a pool of less than twenty insurers who continue to sell the health care product. The big financial problem was that the majority of insurers had badly underestimated the longevity of these long term care policy holders and how many claims would be filed during their lifetime. The model became unsustainable from a business perspective.


Long Term Care Insurance Has Now Become Unaffordable for Many People

As reported by the Wall Street Journal, the long term care insurance industry is now in financial turmoil, and has turned to the old adage of “privatize the gains and socialize the losses.” Translation: millions of people age sixty-five or older with long term care policies are facing steep rate increases.

It is not uncommon for a policy holder to face a fifty percent increase in their premium, while some of the worst cases are upwards of ninety percent. Because the industry itself used such poor benchmarks and miscalculated projections, policy holders are seemingly left with two choices: Pay the money or leave your coverage after paying into it for years, and sometimes decades.

What if you want a different choice? Everyone would agree that being price gouged for premiums as you age is inherently unconscionable, but if the policy is discontinued what then will happen to the peace of mind that their long term care policy afforded them in the first place? What was once the safety net of senior aging care (without becoming a burden to family members) is rapidly disappearing.


Medicaid and Long Term Care Planning

CNBC has recently reported about this very issue and suggests getting financially creative with your long term care planning.  There is a surprising source that you can tap into, in order to maintain protection for yourself. However, it requires careful planning, professional help, and time. Do not delay.

The basic premise is to become “asset poor” in order to qualify for Medicaid, which is government assistance that pays for nursing home care and services. It is important to note that this strategy does not mean that the legacy you built during your lifetime will not go to your selected inheritors. On the contrary, the assets you own must move out of your name to qualify for Medicaid. The assets will then shift to your designated beneficiary, since to qualify, you – as an individual – cannot have over $2,000 in assets. In many instances, people will even pursue what is referred to as a “Medicaid divorce” in order to qualify for financial assistance.


Overview of the Elder Law Medicaid Planning Process

To begin, if you decide that you want to pursue this strategy, it is critical that you retain the services of a qualified elder law attorney, who may also bring in an accountant and a financial advisor. Ideally, you will be able to wait five years before needing long term care and the help of Medicaid. If there are assets transferred during the “five year lookback,” it may be subject to penalties or make the applicant ineligible for some period of time requiring them to pay out of pocket.

Now, with time on your side, it becomes critical to select the right vehicle for transfer. These can be annuities, but more often tend to be irrevocable trusts. The assets in the irrevocable trust are no longer under the control of the older person and can provide protection from certain creditors. The vehicle chosen for transfer of assets is very important not only for the older individual but the recipient as well. In the case of an outright gift of appreciated assets (i.e. stocks or real property) there would be no stepped up cost basis which could lead to crushing capital gains taxes when it is time to sell. An elder law attorney with input from your accountant and financial planner can help you choose the right transfer of wealth plan.

Elder law attorneys are closely watching changes in Medicaid, as Congress is often proposing legislation to change the program. Be certain your elder law attorney is up to speed on the current requirements, as the eligibility requirements can change very quickly in each state, and sometimes each county.


McDonald Law Firm is here to help.

Though you may never have thought you would find yourself creatively trying to qualify for Medicaid while protecting assets, the current long-term care premium prices preclude a large portion of seniors from being able to pay the cost of the policy. Genworth Financial reports the national median cost of a private nursing home room to be $97,455 a year. It doesn’t take long to be wiped out at that cost without long term care. Medicaid may be your only solution, and time is of the essence for planning.

Contact our office today and schedule an appointment to discuss how we can help you with your long term care and Medicaid planning.




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For help with estate planning, special needs planning or elder law throughout Howard, Montgomery, Prince George’s, Anne Arundel, and Baltimore County; and Baltimore City, contact McDonald Law Firm, LLC.

McDonald Law Firm, LLC

Columbia Office

10500 Little Patuxent Pkwy, #420
Columbia, MD 21044-3563

Bethesda Office:

(By Appointment Only)

7315 Wisconsin Avenue, Suite 800 West
Bethesda, MD 20814

Washington, DC Office:

2101 L Street, N.W., Suite 300
Washington, DC 20037

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