Basics of Pre-Planning for Long-Term Care

What are the best strategies to consider in anticipation of needing long-term skilled nursing care?

Based on current data, the average annual cost for a stay in a nursing home in Indiana is a staggering $60,000 per year. For many middle-class Americans, this amount – particularly if both spouses need care – is enough to deplete a sizable nest egg in just a few short years, leaving nothing for future generations. As such, it is vital to consider the advantages of long-term care planning long before the need arises, and an elder law attorney can help you best understand your options. 

One foundational principle to understand from the outset is that Medicare does not cover long-term care past 120 days. In other words, a patient needing skilled nursing care longer than four months will need to self-pay. As explained above, paying $5,000 or more per month for a nursing home residency can quickly deplete one’s entire life savings in just a few short years, leaving many to ponder if an alternative option may be better. 

Medicaid Planning

As opposed to Medicare, the Medicaid program does offer full-time benefits for those needing long-term care in a nursing home. However, the program is need-based, and is only available to those who can show a true financial need for long-term care benefits. 

Generally speaking, a Medicaid applicant may only have a small amount of income and assets – not including the family home if the applicant’s spouse is still in residence. Accordingly, pre-planning for long-term care (i.e., Medicaid eligibility) requires the disposal of assets to reach the maximum threshold. Under Medicaid guidelines, below-market transfers of property will trigger a penalty period if the transfer occurred within five years of the date of application. Likewise, any transfers of property made during this five-year “look back” period will result in a penalty congruent with the value of the transfer – and the amount of months the applicant could have paid for with the funds. 

Use of irrevocable trusts is also a way to protect assets from Medicaid regulation, as any property transferred to trust is considered to be no longer “owned” by the trust creator, and therefore is not counted as an asset for Medicaid purposes. Of course, careful drafting of an irrevocable trust is an essential component to the long-term care planning process, and we encourage you to contact a knowledgeable attorney as soon as possible. 

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