Both of my parents will need long-term care soon, and my family is wondering what the best way is for them to pay for it. We’re concerned their cash will be drained in the next six to 12 months. They’re not on Medicaid at the moment, but they have a house that has been in a trust for only three years, and their children are named as beneficiaries. Will we need to sell the house, or can they get a reverse mortgage to pay for their long-term care? Will they need to go on Medicaid?
See: Should I claim Social Security — or wait and live off my 401(k)? How do I make this decision?
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Dear Reader,
I understand how stressful and complicated this is, especially given all the moving parts in your particular situation.
It might seem like there’s nowhere to turn, but you still have some time to make plans with and for your parents — something not everyone has. That said, there may not be too many options outside of Medicaid, but having the information before a more dire scenario arises gives you an advantage.
I say this because Medicaid spends quite a bit on long-term care services. Only 6% of Medicaid enrollees needed long-term services and support in 2020, but those expenses made up 37% of the program’s federal and state spending, according to KFF, a non-profit organization focused on public health and policy. This spending included both in-home and institutional care.
What it comes down to now is finding the best way to get your parents the care they need, and protecting some of their assets.
“You never want a family to run out of money,” said Brian Tully, founder and managing partner at Tully Law Group. “You always want them to have some money left, whether it is a retirement account, proceeds from a reverse mortgage they’ve moved to children or a well spouse. You always want to have access to money.”
“Spending everything down is a mistake,” he added.
“‘Spending everything down is a mistake.’”
As far as selling the house goes, that should be the very last resort. Even if your parents did end up on Medicaid, the house is an asset they don’t have to give up while they’re still alive. Medicaid rules vary state by state, but in New York, for example, a primary home is exempt from total assets while the individual receiving care is living there, or intends to return there after their time in a nursing home. This can be true of other states as well (Florida is another example).
There are, however, limitations to other assets. Those figures also vary by state, but you can imagine that the value of a home would exceed those limits. If you were to sell the house, that’s exactly what you’d be putting at risk.
A reverse mortgage acts in a similar manner. You could get money from a reverse mortgage through a single lump sum, or regular fixed monthly payments, but that again can disqualify your parents from Medicaid eligibility — or require them to spend down those assets quicker than they otherwise would have. Look for a qualified and trustworthy estate or eldercare attorney who can help you make sense of your state’s specific rules.
Carefully examine the “lookback periods” in your state for in-home or nursing home care, Tully said. A lookback period is the amount of time Medicaid will use to check financial transactions leading up to the application. In New York, nursing homes have a 5-year lookback, whereas in-home care has none at the moment (that’s rare, he added).
Be attentive of the laws and proposals surrounding these rules, though. For example, former New York Governor Andrew Cuomo signed a law stating that New York would have a 2.5-year lookback period for in-home care, but that legislation was paused because the pandemic began shortly after. It is now slated to start as early as April 2024.
This lookback component is crucial for that trust your parents have. Just because assets are in a trust doesn’t make it safe from Medicaid. If it is an irrevocable trust, for example, it is considered a gift and subject to lookback periods. And even when the house is exempt because of a qualifying trust, there are still other eligibility requirements for Medicaid, including income and other asset restrictions.
Penalizing Medicaid applicants
Medicaid applicants will be penalized if they have assets that fall under the lookback period. This, too, is on a state-by-state basis, but essentially Medicaid just won’t pay for a specific period of time based on the value of those assets. In the meantime, the people in need of care — your parents, in this case — would need to pay privately, which would further drain their savings. An estate or eldercare attorney can help you here too.
Keep in mind, Medicaid may eventually look to be reimbursed for what they paid for long-term care, once both spouses have died. This is known as “estate recovery,” and also varies on a state-by-state basis. States may impose a lien on a property, or try to take money from a trust after the Medicaid beneficiary (or beneficiaries, in this case) has died, according to Medicaid.gov. There are protections in place so that this estate recovery process would not cause “undue hardship” to families, and the recovery process applies to assets that are in the probate estate (though again, the rules vary by state).
Beneficiaries should be made aware of these stipulations, and understand a part of their inheritance could be impacted by their parents’ need for long-term care services. By being honest about that possibility, the beneficiaries can plan ahead, so their own retirement security isn’t at risk down the road.
Regardless of how you work around this scenario, start looking up the best long-term care options for your parents now, as well as how much it can cost in their area. Those numbers will vary considerably by state, or even by county. The national monthly average cost for a semi-private room in a nursing home was almost $8,000 in 2021, according to Genworth’s Cost of Care Survey, and that figure jumped to more than $9,000 for a private room. Comparatively, an assisted living facility cost an average of $4,500 per month, and costs for a home-health aide for 44 hours per week hovered over $5,100 per month, the study found. You can check the average cost in your neighborhood on a monthly, daily, hourly or annual basis on Genworth’s website, as well as estimate future costs,
Get serious about finding a facility — or a professional if you choose the in-home option — now, even if you don’t think your parents will need anything for another year or two. The search can be arduous, as well as the process from the moment you start looking to the time an individual starts receiving care. Obviously check that these places accept Medicaid, apply and wait for a spot to open up.
I know it’s a tough situation, but you can do this one step, one day at a time.
Also see: I have about $3 million in pension and savings. Should I claim Social Security earlier than 70?
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