Let’s paint a picture. George Smith is an active, golf-loving retiree of age 75. He and his wife Betty have been having a great retirement traveling, visiting with grandchildren, doing Florida winters and staying in the Lake Huron cottage during summers. Things are going great. But.
George has started to notice that Betty has some serious lapses of memory. She always brushes these off with a laugh “Oh, there I go again! Forgetful Betty!” Some of these are nothing at all like forgetting where she put her purse. Others are troubling. When down in Florida every now and then she could not find their condo. Other times she would go right to it. Lately it seemed that whenever she would go to the store she always came back with bread, even though she just bought it two days ago. He looked in the cupboards and noticed that they had multiple cans of tuna and green beans and then noticed that every time she came back from the store she brought tuna and green beans too. Then there is her cooking. Betty always prided herself on being a good cook but lately she has been having problems. It seems that she does not handle the more complicated processes. She doesn’t do her complicated recipes much and makes simpler meals. Yet she still might forget a step. It might be forgetting the vegetables or forgetting to saute the meat. This is not the normal Betty.
George began reading on Alzheimer’s disease and learned that a person has it for years before it gets so bad it can be officially diagnosed. He is afraid Betty is in the very early stages of Alzheimer’s and that before 10 years she will be in a nursing home.
George began looking into long term care insurance. He found, just as he feared, that at their age it was prohibitively expensive. Was there anything he could do to afford the cost of caring for her? Anything to “insure” their home and savings from total depletion? The answer is “yes” but let’s look at the problem a bit further.
Currently the state average cost of a nursing home in Michigan is just over $7,000 a month. It has been increasing at the rate of about 4% per year for the past 10 years. For example in 2002 the average cost was $4,700 a month. That means in 10 years George could expect the monthly cost to be over $10,000 per month.
Could George consider long term care insurance? We might use the federal employees plan as a point of comparison. Let’s consider a plan that pays most, but not all of the cost for three years – $200 per day. For a 75 year old applicant a policy with a 4% inflation rider, would cost $5,660.88 per year. Let’s double that for two. That would make it $11,321.76 per year. After 10 years that would be $113,217.60. That could still be a good investment, if they could get it. Reports say that about 44% of applicants between ages 70 and 79 are denied. Of the two of them Betty may not be able to get it.
If Betty cannot get long term care insurance, then are there any other options? Yes. They can consider five year Medicaid planning. It acts as insurance against loss of life-savings by accessing the Medicaid program to pay for long term care. For the cost of less than one year insurance bill they can shelter their assets in the contemplation that Betty likely will need a nursing home. To do that they will have to execute an estate plan that transfers assets to George who then sets aside a substantial portion of their savings in an irrevocable trust.
There are many questions to be answered when contemplating five year Medicaid pre-planning. I will here offer a very brief overview. I have covered the subject in more depth in other articles.
One of the first questions to be answered is “How great is the risk of long term care?” If a person has serious heart disease and related conditions Alzheimer’s Disease may not be a terminal condition to plan for.
What is your long term care plan? Will you rely on family members or commercial providers? A person rich in human resources will not need to save funds for commercial providers and has an incentive to be sure the wealth stays in the family.
How does Medicaid fit into your plan? If it only provides payment for the nursing home, are you willing to give away assets to gain that? If you are adamant about avoiding the nursing home, then Medicaid may be of little benefit to you and you should plan on self pay for your care.
Do you have enough to ‘give away’ and still provide for yourself? Commercial dementia care is expensive. Even adult day programs can cost hundreds of dollars a week. The cost of assisted living for dementia care can range from $3,000 to $6,000 per month.
Who is the ideal candidate for five year Medicaid pre-planning? A person who is already in an assisted living / long term care facility that provides a continuum of care with Medicaid being part of the service plan. With that information you can then plot a care continuum and budget for the expenses. If you find you have enough to cover at least five years of progress of the disease then the remainder of the wealth is suitable for asset sheltering.
In closing we can see that George and Betty may or may not be interested in five year Medicaid pre-planning. They would have to consult with an elder law attorney and review all options. Then they would have a clearer idea of what course of action to take.