That is the average cost of one year of nursing care in Pennsylvania.[i]
What will those costs do to a senior’s life savings in three years? Five years? How will your spouse survive financially?
These are the questions that bring many of our clients to the office. This post discusses three strategies for protecting against losing one’s assets to an extended stay in nursing home care.
Asset protection trust
Placing assets into trust protects against nursing home spend-down, as well as other hazards seniors face, including: undue influence to gift or bequeath assets away; scam artists who reach seniors by phone, email, or internet; loss of assets to lawsuits resulting from a senior’s negligence; and other threats.
A well crafted trust can have other positive effects, such as preserving favorable tax treatment of assets and saving on estate administration and probate costs.
An asset protection trust works by changing the ownership of assets into the name of the trust, which will be managed by a trustee. The former owner gives up ownership of those assets in order to gain asset protection, but is allowed to dictate how the trust assets will be distributed, to whom, when, and under what conditions.
Such a trust works best when created and funded at least five years before nursing care is needed. Getting the clock ticking is important to the success of this strategy.
In other cases, we don’t have time to use a trust strategy – nursing care is needed now, or very soon.
Medicaid planning then becomes the best option: design an immediate spend-down plan that will make maximum use of the Medicaid rules and regulations to achieve the most favorable outcome.
If there is a spouse at home, the focus is on preserving assets and income for the spouse to live on now, and in future years. If there is no spouse, we look at other ways to save assets through exempt transfers, the purchase of exempt assets, allowable gifting, and other strategies.
Many of our prior blog posts spell out the details of how Medicaid plans work to preserve assets.
Long term care insurance
Another option is long term care insurance. By taking out insurance and paying premiums when one is still relatively healthy, one can reduce the risk that a long stay in a facility will eat up the life savings. Another advantage is that it will usually pay for care at home, in addition to covering care in a facility.
In addition to traditional long term care insurance, many companies offer hybrid policies that combine life insurance with long term care insurance, or guarantee a death benefit. That approach appeals to customers who want make sure that the estate has not simply lost the value of the premiums paid, if it turns out the customer never needs care.
I encourage those nearing retirement age, and older, to consider long term care insurance to protect assets. Make sure you seek coverage before a health event makes you ineligible.
Which approach is right for you?
The answer turns on a number of factors, including your age; amount and type of assets; marital status; health; and the goals you have for yourself and your beneficiaries. No single answer fits everyone.
To discuss your situation, give us a call!
[i] The PA Department of Human Services tracks the average cost of nursing care in the state. According to the most recently announced figures (January 1, 2023), the average daily rate for private pay nursing care was $423.11. Multiplied by 365 days produces the average yearly cost of $154,435.08.