About Financial and Insurance Ideas and Help
Protecting Assets from Nursing Home Costs
Government Programs That Allow for Family Members to Provide Care
Veterans Administration Long Term Care Reimbursement for 1/3 of all Seniors
Contingency Funds for Long Term Care Costs
Protecting Assets from Medicaid Recovery
Life Insurance and Annuities for Estate Planning and Long Term Care
Finding Money through Life Settlements
Long Term Care Insurance
The Use of Reverse Mortgages
Asset Transfers to Qualify for the Veterans Aid and Attendance Benefit
Medicaid or VA Benefits and an Unoccupied Home
When the Value of the House Exceeds $500,000 ($750,000 in Some States)
Medicare Supplements, Medicare Advantage Plans and Drug Plans
Protecting Assets from Nursing Home Costs
Nursing homes are extremely expensive. Depending on the geographic area, costs can range from $4,000 a month to $7,000 a month and in some areas in the Northeast, nursing home costs can be as much as $10,000 to $12,000 a month. Any retirement savings a nursing home resident has accumulated are often quickly depleted.
A vast majority of Americans simply don't have the money to pay for any more than a few months of nursing home care and they must eventually rely on Medicaid to make up the difference between their income and the cost of the facility. Medicaid requires an eligible beneficiary to have less than $2,000 in liquid assets.
This means any savings or investments must be spent first before Medicaid takes over. If there is a spouse at home, there are special impoverishment rules that allow that spouse to keep a certain amount of assets and income, but oftentimes these spousal allowances result in a significant reduction in the standard of living for the healthy spouse. In addition, members of the family who provide long term care care services and housing prior to the need for a nursing home are not recognized by Medicaid for their sacrifice and they are not allowed to receive any transfers of money from the Medicaid recipient or the spouse.
There are legal ways to transfer more money or income to a healthy spouse or to transfer assets to family members. Medicaid does not share these strategies with the public. But there are attorneys and specialists who do understand Medicaid transfer rules and can help with providing more for a healthy spouse or transferring assets to other deserving family members.
Our area Directors are familiar with these strategies and can either provide direct information or send the public to members of the State Care Council who specialize in this area.
Government Programs That Allow for Family Members to Provide Care
Both Medicaid and the "Veterans Aid and Attendance Benefit" allow a long term care recipient to pay members of the family to provide legitimate care. This can be an effective way of recognizing the sacrifice of family members who care for their loved ones by transferring assets to them in the form of payments for care. Otherwise -- primarily with Medicaid -- money cannot be directly gifted to family members without creating an eligibility penalty. In addition, with the Veterans Aid and Attendance Program, money paid to family members can usually be replaced in the form of additional income to the veteran household.
Our area Directors understand this "hired family caregiver" concept and can help you find a specialist to set up such arrangements.
Veterans Administration Long Term Care Reimbursement for 1/3 of all Seniors
At least 33% of all seniors age 65 and older could qualify for a little-known veterans benefit called "Aid and Attendance Pension Benefit." That's how many war veterans or their single surviving spouses there are in this country. Under the right circumstances, these veteran households could qualify for up to $1,800 a month in additional income to help pay the costs of long term care.
State service area Directors are familiar with this program and can explain it to interested individuals as well as directing those individuals to the person who can help them.
Contingency Funds for Long Term Care Costs
According to some sources, at least 60% of all individuals in this country will experience the need for long term care services. In many cases, this care might only last for a few weeks or months. But for those unfortunate individuals where care lasts for years, the financial cost can be significant. In many cases, retirement savings accounts are completely wiped out. A good strategy for preparing for this eventuality in old age is to set aside money when one is young and is working. Congress is also toying with the idea of allowing such contingency funds to accumulate and be used for long term care, free from taxes. If this happens, this might provide an additional incentive for people to save for the need for long term care.
Our area managers understand the concepts of periodic purchase savings and the power of compounded interest earnings. They can explain how such a contingency fund code be set up, where it could be invested and how much would be required yearly or monthly to provide adequate funds in old age.
Protecting Assets from Medicaid Recovery
As far as we know, Medicaid is the only government entitlement program that attempts to go after a beneficiary’s home after that person dies. Medicare, Social Security, disaster relief, crop subsidies, income assistance and a host of other government support programs do not place liens against someone's property after they die to repay the government for the money it spent on that person's behalf. A great amount of the money for government support programs does not come from beneficiary contributions but directly from the general budget. This includes Medicare and Social Security. Yet, Medicaid appears to be the only program that tries to recover these general budget dollars. As unfair and inequitable as Medicaid recovery is, it is still a reality that must be dealt with. There are legal ways to keep property out of the hands of Medicaid recovery. Our area Directors are familiar with these concepts and can arrange for specialists to help retain property from Medicaid recovery.
Life Insurance and Annuities for Estate Planning and Long Term Care
Deferred Annuities Provide Tax Advantages and Potentially Better Earnings
The appeal of deferred annuities is the deferral of taxes on earnings until money is withdrawn or the annuity is converted into a guaranteed income stream. Deferred annuities can also avoid probate if the owner chooses not to create a living trust for this purpose. As a general rule, annuities have the potential of producing an average yearly rate of return somewhat better than a bank CD or savings account. Annuity returns also tend to be more stable than short-term savings. Life Insurance for Long Term Care Planning
Life insurance companies have become more competitive in recent years for policies issued on people over age 70. Good health is still a major consideration for low premiums but policies have been redesigned to provide more death benefit and less cash value. Some term policies and certain universal life permanent policies are designed to provide a guaranteed death benefit up to age 95 with a guaranteed premium and no cash value at all. This design generally results in more death benefit for each premium dollar. Also, policies designed for couples -- second-to-die policies -- can provide a significant amount of insurance for a one-time single premium even if one of the partners is in very poor health.
An important concept to consider is that single premium life policies with no cash value and purchased for estate planning purposes, many years in advance of applying for Medicaid, can be a valuable planning tool if the need for Medicaid arises. Medicaid does not apply the death benefit of a life insurance policy to the asset spend down rule. But the cash value of any policy that has more than $1,500 in cash will count towards the asset test and could disqualify a Medicaid applicant. As an example, a person could have $1 million of life insurance with cash value less than $1,500 and it would not prevent that person from receiving Medicaid. However, cash value of more than $1,500 in this example will apply toward the asset test. It is important to know, for planning purposes, that people who apply for Medicaid and then transfer assets to a life insurance policy, while they are going through spend down, could be in violation of their state' s Medicaid transfer rules and such an act may disqualify the applicant.
Life insurance can be used as an alternative for funding the cost of long term care. If someone planning for the eventuality of long term care is concerned about losing assets that would normally be passed on to the children or be needed by a surviving spouse, that person can invest a portion of those assets in life insurance and leverage a death benefit payout -- sometimes for up to $3.00 in death benefit for every $1.00 in single premium. The death benefit is also income tax-free. A person creating such an estate can then use remaining assets for long term care needs in the future but still be assured that the children or a surviving spouse will receive an inheritance at death through the life insurance. And, as discussed above, if the money runs out and Medicaid has to start picking up the costs, a single premium life insurance policy with less than $1,500 cash value will not disqualify the applicant owning the policy
Another use for life insurance for the elderly is in paying the cost of final expenses such as funeral and burial. A number of companies will issue policies without any health questions for people who may not have very long to live. Most of these policies will provide little or no death benefit in the first two years after issue and so there is some risk, but most companies will also return the premiums paid if death occurs in the first two years.
IRA or 401(k) Income Life Annuity to Buy Life Insurance
Tax qualified investments such as IRAs, 401(k)s, Tax Sheltered Annuities and other plans are great for saving taxes while one is working but many seniors find they don't need that money during retirement and they may want to pass on some of this tax sheltered money to their children. New "stretch IRA" rules have made it easier to reduce the immediate tax burden on these transfers at death but income tax that was deferred must still be paid. The income tax on these transferred assets can eat up a significant portion of the investment.
One way to create a tax-free transfer at death is to convert the IRA or 401(k) into a life annuity income while the owner is alive and use part of the income to purchase a life insurance policy that would equal the amount of money in the IRA -- intended as an inheritance. A life insurance death benefit is income tax-free and thus the loss of a significant part of the account to taxes has been avoided.
Medicaid Spend down for Funeral Trust
Medicaid will allow a Medicaid applicant to transfer a certain amount of assets into a trust that will pay for funeral and/or burial costs at death. In many states the maximum allowable amount is $15,000. These trusts are often funded with special life insurance policies. The trust must be irrevocable and meet Medicaid rules for such trusts.
Medicaid Annuities
If one spouse in a couple needs long term care costs to be covered by Medicaid, the couple must divide combined assets in half and the spouse needing care must spend his or her half of the assets down to less than $2,000 remaining. This loss of assets may reduce the standard of living for the healthy spouse at home.
Medicaid will allow the spouse needing care to convert his or her share of the assets into an income annuity that belongs to the healthy spouse. This legal strategy provides the healthy spouse with more income and avoids the impoverishment imposed by the spend down. These annuities must meet strict rules imposed by Medicaid and an expert in this area should be sought out.
In the past, advisers also recommended these income annuities for single Medicaid beneficiaries in order to transfer some of the spend down assets to members of the family at the death of the annuitant. The Deficit Reduction Act of 2006 changed the rules for these single Medicaid beneficiary annuities and did away with their use as a planning tool for asset transfers. Under certain circumstances partial transfers can still be done using a Medicaid beneficiary income annuity called a "half-a-loaf" transfer. As with a spouse annuity, an expert should be sought in order to make sure this is done properly.
Medicaid Anticipation Deferred Annuity
Money can be invested in deferred annuities anticipating the eventual annuitization (conversion into guaranteed income) for Medicaid purposes. Many practitioners set up these investments inside of living trusts which also avoid probate. These deferred annuities should be designed so that the money can be turned into a guaranteed income stream for either spouse of a couple. The income stream must go to the healthy spouse -- the one not requiring Medicaid assistance.
Charitable Annuity Remainder Trusts
Many people have investment property that has accrued a significant capital gains tax liability in the event of a sale. Some people prefer to give their assets to charity and a charitable remainder trust is a way to transfer property with capital gains liability to a charity and avoid the taxes. These arrangements also include a lifetime income option for the individual or couple making the donation. The charity provides the income and in many cases will use a single premium income annuity to create the monthly cash flow. In the case where a person receiving this income anticipates needing Medicaid or the VA benefit in the future, the income must be set up as an irrevocable annuity and the charity must be the owner and not allow the annuitant any control over the income.
State service area Directors are familiar with all of these life insurance and annuity products and concepts and help the public understand the various options and find suitable products if necessary.
Finding Money through Life Settlements
In recent years, a large and growing industry has emerged where major investment groups, mutual funds or hedge funds purchase the life insurance policies owned by older Americans. The purchasers become the new owners and beneficiaries for the death benefits of these purchased policies. They also take over paying the premiums. This is a legitimate investment in the death of another person. The investor will pay the insured 20% to 80% of the face value of the policy depending on the age and health of the seller. The purchaser must be able to invest in a large number of policies and must be able to reasonably predict when death will occur for those policies. Historic death rates typically enable determination of what costs should be put into purchasing the policy and paying for premiums in order to achieve a reasonable investment return in the payout of the death benefits.
Policies generally have to have a face value of more than $100,000 and in order to receive a reasonable purchase price for the policy, the owner should not be expected to live much longer than three to five years. For those life insurance owners who also need long term care, this is an excellent way to free up money to pay for the immediate costs of that care.
Our area Directors understand life settlements and can help the public directly or find specialists in this area of expertise.
Long Term Care Insurance
We discussed above the use of a contingency fund, begun early in life, to pay for long term care in later years. The most efficient and the least expensive way to pay for care, is to purchase long term care insurance. For every $1.00 put into a contingency fund, $.10 could be put into a long term care insurance policy and produce the same dollar benefit at age 75. Or stated another way, a long term care insurance policy could produce 10 times more benefit than the same money put into a contingency fund. Some policies also allow return of premiums at death if the policy benefits are not fully utilized. Area Directors are knowledgeable about long term care insurance and can discuss this as an option for family members of seniors needing care. Family members confronting the need for care for loved ones often see the need for planning for themselves and if they are under the age of 65, long term care insurance should be a major part of that planning.
The Use of Reverse Mortgages
Most elderly homeowners fail to recognize the value of a reverse mortgage. If you ask individuals what their largest investment is, most people will answer, "their home." But the equity in a home is only an investment when you can get to it. Unfortunately, equity is not liquid and the only way in the past for people to cash out equity was to sell their home. However, much of that equity cash had to be used to rent a new home, pay for facility care or purchase a new residence. In other words, the freed equity ended up being locked-up again because of the need of retaining a place to live in. A reverse mortgage allows a property owner to remain in his or her home but still get to the equity with no risk, no income requirements, no credit check and no monthly payments.
Most people who are doing reverse mortgages are seeking the money in order to pay off an existing mortgage or pay off debt. Many more should be using their equity to pay for long term care and remain in their homes. Money should also be used for the single premium life insurance strategies we discussed above. For healthy seniors, reverse mortgage money could also be used to purchase long term care insurance.
Reverse mortgage money used to purchase a single premium income annuity or left in the mortgage line of credit will not bar that person or his or her spouse from qualifying for Medicaid.
Area Directors have an understanding of reverse mortgages and can provide information and possibly quotes for those who are interested in pursuing this as a funding option.
Asset Transfers to Qualify for the Veterans Aid and Attendance Benefit
Even though 1/3 of seniors could qualify for the aid and attendance benefit, they must meet an income and asset test. It is not usually difficult to meet the income test if the veteran or the veteran's surviving spouse incurs the high cost of long term care. These ongoing care costs can be subtracted from income to meet that test. However, assets in excess of $80,000 will disqualify applicants. And any level of assets below $80,000 could block a claim depending on the decision of the VA employee processing that claim. A home, vehicle and personal property are exempt from this asset test. Applicants can give away assets or convert those assets to income and VA will not penalize them as with Medicaid. And unlike Medicaid there is no look back penalty period either. But these transfers have to be done correctly. It is also extremely important that any transfers meet Medicaid transfer rules, since it is highly possible that the VA beneficiary might also need to apply for Medicaid inside the five-year look back for asset transfers.
Area Directors understand the rules governing the veterans aid and attendance benefit and Medicaid and can help potential applicants by providing information or directing those applicants to someone who can provide that information.
Medicaid or VA Benefits and an Unoccupied Home
In most states Medicaid will allow a single Medicaid beneficiary to leave his or her primary residence unoccupied while that person is residing in a facility. Not living in the home does not disqualify a person from receiving Medicaid in most states. VA takes the same attitude when someone is receiving the aid and attendance benefit in a facility. Any rental income from an unoccupied home must be counted as income for both programs and could create a problem with eligibility. The family could also be tempted to sell the residence which would then create assets that would disqualify the recipient for both programs -- Medicaid and VA. Finally, family members might transfer the title to the property which would also disqualify the Medicaid recipient and cause problems with the VA benefit.
Our area Directors understand this issue and can offer information on how to protect the home and what to do with the home in order to avoid losing the benefit from either Medicaid or VA.
When the Value of the House Exceeds $500,000 ($750,000 in Some States)
Any single person applying for Medicaid in a facility, and owning a house worth more than $500,000 ($750,000 in some states) is ineligible for Medicaid assistance. This is only the case where the house is not occupied by a spouse or other qualifying dependent. Apparently, the intent of this rule is to have the house sold and the proceeds used towards paying the facility care before Medicaid needs to take over. This is a new rule and its application in practice is going to be difficult for some applicants to handle due to a number of underlying problems associated with disposing of the property.
Area Directors can provide information or send family members to a specialist who can help with the problems associated with disposing of the property, reducing its value or otherwise finding a way around this rule.
Medicare Supplements, Medicare Advantage Plans and Drug Plans
Area Directors can offer information or insurance plans for Medicare or these directors work closely with specialists who can provide information and insurance plans.
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