Long Term Care Planning 20090608
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Transcript of Long Term Care Planning 20090608
Long-term Care and Asset Protection Planning
Sandra L. Smith, CELAOast & Hook, P.C.
Attorneys and Counselors at LawServing Virginia and North Carolina
Tel: 757-399-7506 | Tel: 252-722-2890Fax: 757-397-1267 www.oasthook.com
What Is Long-term Care? Continuum of care consisting of a wide range of services
including public, private, and community-based Delivered in:
Your own home Adult day care center Continuing or life care communities Assisted living facilities: 50% to 80% cognitively impaired
and require assistance with 2.8 of 6 ADLs Nursing home: 80% of residences have cognitive
impairments and require assistance with 4.7 out of 6 ADLs Services delivered at skilled, intermediate, or custodial level The largest part of long-term care is custodial care; providing
assistance with activities of daily living (ADL) required as a result of an illness, an injury, or cognitive impairment
What are the Chances of Needing Long-term Care?
“For a couple turning age 65, there is a 70% chance that one of them will need long-term care.” – Wall Street Journal
For an individual turning age 65, there is a 43% chance that the individual will need long-term care in a facility. – John Hancock. Long-Term Care Marketing Guide
“60% of people over age 75 need long-term care – many stay in facilities for about 3 years.” – Business Week
For an individual age 80, there is a 50% chance that the individual will require care in a long-term care facility. – United Seniors Health Council.
“97% of people over age 85 require assistance in the last year of life.” – The LTC Report
Cost of Long-Term Care
In-home care: $19 per hour for an uncertified care giver ($165,984 per year for 24/7 care) or $32.37 per hour for certified care ($282,784 per year for 24/7 care)
Adult day care: $50 per day Assisted living facility: $35,628 per year o $51,240 if the individual needs
additional care due to a diagnosis of dementia Custodial or intermediate nursing home: $212 per day or $77,745 per year
Figures are national averages and provided by the American Association of Homes and Services for the aging
Future Cost of Long-term Care
Assuming a 5% inflation rate, the annual cost of a nursing home stay will amount to: In 10 years $ 126,638 In 20 years $ 206,280 In 30 years $ 336,009
That means that in 30 years, a 2 ½ year
stay will cost $840,022!
Note: Costs are based on present average rate of $165 per day
Why Do We Care About Asset Protection Planning? Long-term Care will become more
prevalent as our population ages, many clients will have questions or be in the midst of planning.
There are many forms of asset protection and all people are concerned in some waysThink car insurance or homeowner’s
insurance
What is Asset Protection Planning?
Positioning assets to minimize the impact of a catastrophic event
LTC, lawsuit, divorce, etc – all require asset protection planning
We will focus on LTC
Is Asset Protection Appropriate for Everyone? Asset protection has a variety of meanings
Think long-term care insuranceInvestment planningLife insuranceMedicaid planning
• Example – client with $12,000,000 in gas, coal, and mineral properties
• Example – married clients with approximately $1,000,000 net worth
Prior Planning Improves Results
Locate and organize Information (critical for good planning) Deeds, stock certificates, annuities and bonds Financial statements and records Insurance policies (life, health, long-term care and property) List of advisors Tax returns
Consolidate investment accounts to simplify management Update legal documents for entire family (especially gift
provisions and choice of fiduciaries) Wills and trusts Powers of attorney Advance medical directive Designations of beneficiary
Plan for the payment of the cost of long-term care
Sources of Funds to Pay for LTC
There are five sources of funds to pay for long-term care:Medicare and Medicare Supplements: 16%Veterans and other public benefits: 3%Your income, savings and life insurance:
26%Long-term care insurance: 11%Medicaid: 44%
Source: Centers for Medicare & Medicaid Services, Office of the Actuary, National Expenditures Tables, 2003.
Medicare and Medicare Supplements
Medicare pays only for skilled nursing home care
As a result, according to Medicare itself, Medicare pays less than 5% of the costs of nursing home stays
Medicare Supplement policies pay only approved Medicare expenses. This means that supplements pay less than 1% of nursing home costs
So, Medicare really does not serve as a source of funds
Medicare Benefits
For skilled care only Following 3-day hospitalization, Medicare will
cover:Days 1 to 20 All costs at
100%Days 21 to 100 100% after
$128*/dayDays 100+ Nothing
*2008 Medicare figure
Medicare Facts
Medicare was not designed to address custodial, long-term care needs and does not do so. Medicare pays only for short-term medical treatment, such as hospital and doctor bills
Medicare only covers skilled care and under limited circumstances For Medicare to pay for nursing home care:
Care must be provided in a skilled nursing facility Care must be provided within 30 days after a prior hospital stay of
at least 3 consecutive days Care must be restorative in nature—must be designed to make
patient well. Any type of intermediate or custodial care (99.5% of care provided in a nursing home) is not covered
That Leaves Four Choices
Veterans benefits
or
Your income, savings and life insurance
or
Long-term care insurance
or
Medicaid
Veterans Benefits
Special Pension benefits to help pay for health care
TRICARE FOR LIFE VA hospitals offer free health care
Planning for VA benefits
If this is an available benefit pension may be preferable to Medicaid planning.
Pension may help cover the cost of assisted living which is not typically covered by Medicaid
Currently no restrictions on transferring property to qualify for benefits
That Leaves Three Choices
Your income, savings and life insurance
or
Long-term care insurance
or
Medicaid
Income, Savings, and Life Insurance
Can client contribute a portion of their income to long-term care costs?
Do they have a substantial savings? Do they have a life insurance policy with
cash value or an accelerated death benefit? Do they have a life insurance policy that can
be sold using a viatical or life settlement?
Use Life Insurance
Cash value life insurance. Cancel the policy or take a loan against the cash value
Accelerated death benefits. Some life insurance policies permit you to withdraw death benefits while you are alive if you meet eligibility standards which typically include have a year or less to live and confinement to a LTC facility
Viatical or life settlements
Life and Viatical Settlements
Proceeds received from viatical settlements, life proceeds from life insurance, are not considered income for federal tax purposes.
Proceeds from a life settlement may be considered ordinary income, capital gains, or a combination of the two. The law is not clear regarding taxation of life settlements.
As a result, using monies from such a benefit to supplement pension or social security income may be enough to cover cost of care and not force you to withdraw amounts from principal investments, which may force capital gains tax.
That Leaves Two Choices
Long-term care insurance
or
Medicaid
LTC Insurance Deductibility
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) requires that long-term care carriers change their current policies to meet guidelines called for under this legislation. The law allows: Individuals who itemize to deduct premiums as a medical expense LTC benefits received by a claimant to be tax free to the recipient Individuals who itemize to deduct LTC expenses not covered by
insurance Self-employed individuals to deduct 100% of their LTC premiums as
a business expense directly on Form 1040
Finally - That Leaves One Choice
Medicaid long-term care assistance State program funded in part by the federal
government 209(b) states which have some eligibility
rules which differ from Supplemental Security Income (SSI) eligibility rules
Administered by the Department of Medical Assistance Services (DMAS)
Eligibility determined locally by the Department of Social Services
Overview
Medicaid eligibility and asset transfer rules are extremely complicated
Rules vary substantially from state to state, and they change constantly
Don’t rely on advice from friends, family, or even someone that had the same experience in the past. You must do your own research
Medicaid Manual
Handbook for eligibility workers Different in every state and is called
something different in every state Department of Social Services will not
give opinions on hypothetical situations
Basic Criteria for Eligibility
Be a state resident Membership in covered group Functional and medical criteria Resource eligibility rules Income eligibility rules Asset transfer rules
Financial Criteria: Resources
Default rule is that an asset is countable unless it is specifically exempt
Assets must be substantiated from the first day of the first month in which continuous institutionalization occurs
All transfers for the last five years must be disclosed Maximum is $2,000 in countable resources
Countable Assets
Includes jointly-held property IRAs and retirement plans generally count 100% Cash value of life insurance policies when face
values exceed $1,500 Conversion of exempt resources during eligibility
counts as income in the month received
Common Thought
Give it away – Local divisor – varies from state to state and by
region in the state (current in Southeastern Virginia is $4,954)
Pre DRA: Penalty period begins on first day of month in which gift is made
Post DRA: Penalty period begins when funds are spent down and NH care required
Penalty periods can be concurrent No limit on penalty periods Not all transfers give rise to penalties
Lookback Periods
O Pre DRA Gifts: 36 Months for direct gifts and 60 months for gifts involving a trust
O Post DRA Gifts: 60 months for all uncompensated transfers
Non-countable/exempt Resources
Personal possessions One automobile Principal residence (with limitations) Trade or business property Certain prepaid burial arrangements Term life insurance Life estates (but avoid uncompensated
transfers) d(4)(A) trusts Assets that are considered inaccessible
Spousal Protections
Community Spouse Resource Allowance (CSRA) - $21,912 to $109,560
Primary residence Minimum Monthly Maintenance Needs
Allowance (MMMNA) Post Medicaid eligibility windfalls do not count
against the institutionalized spouse
Financial Criteria: Income
For a single person, all but $40 per month goes towards paying the cost of care
Institutionalized individuals may pay supplemental health insurance premiums
Community spouse has the MMMNA
Common Asset Protection Strategies SNTs Care Agreements Good Faith Effort to Sell Life Estates Transfer to a caretaker child or disabled
child 5 year trust plan Promissory notes Medicaid Annuities
Self-Settled Special Needs Trusts (d)(4)(A) Special Needs Trust (SNT)
Established by a parent, grandparent, court or guardian Funded with the assets of the beneficiary Beneficiary must be under age 65 and disabled Trust must be for the sole benefit of the disabled person At the beneficiary’s death, the trust must contain a pay
back provision (d)(4)(C) Pooled Disability Trust
Established by the disabled person, parent, grandparent, court or guardian
Funded with the assets of the beneficiary Managed by a public charity At the beneficiary’s death, the trust must contain a pay
back provision or be retained by the trust
Care Agreement
Contract to provide care services Many feel this is an easy way to
compensate children Virginia has special rules
Cannot be in a facilityMust have a physician’s statement
Good Faith Effort to Sell
List real property for tax assessed value
What happens when it sells? – capital gains
Life Estates
Once a very popular planning strategyMay soon no longer be available in
Virginia Remainderman gets a step up in
basis
Transfer to caretaker child or adult disabled child
Certain transfers are not penalized for Medicaid
Transfer = gift. Carryover basis and loss of step up in
basis both should be considered
5 year trust plan
Involves gifting assets to a trust. Leaves individual ineligible for
Medicaid for 5 years. Trust should be a defective grantor
trust so an incomplete gift for tax purposes.
Promissory notes
Irrevocable, non-assignable, non-transferable, actuarially sound, based on life expectancy.
Must charge interest, interest is income – but will medical expenses cause this to be a moot point?
What about a business, purchasing asset, then interest may be deductible
Medicaid Annuity
Same requirements as promissory note
Must name Commonwealth of VA as remainder beneficiary
Excellent option for qualified benefits, if using other assets, does this become a realization event?
Estate Recovery
Virginia has the right to recover against a decedent’s estate for past Medicaid benefits paid
Virginia generally recovers against probate assets, but could pursue non-probate assets
Conclusion
LTC will be an important concern in the upcoming years
Asset protection strategies are numerous and should be handled by specialists
You may be able to advise those who have not considered the consequences of their actions
Oast & Hook, P.C.Attorneys and Counselors at LawOffices in Elizabeth City, Portsmouth, and Virginia BeachTel: 757-399-7506 | Tel: 252-722-2890 | Fax: 757-397-
1267 Please visit our web site at www.oasthook.com
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