When someone hears that I'm an elder-law attorney, they invariably assume I handle wills and trusts. I then explain the difference between elder law and estate planning. An estate plan covers the scenario of someone dying. It dictates how the assets will be distributed and to whom. An additional emphasis is placed on minimizing estate and inheritance taxes through the use of wills and trusts.
But in today's world, the bigger and more difficult question is: "What happens if I live?" What happens if an individual lives through declining health and increasing health care costs? And there are even more questions if the person has to rely on others for assistance, either temporarily or permanently. An estate plan can help you answer the first question, but a long-term care plan can help you answer both questions.
So what does a long-term care scenario look like? First, it is important to recognize that the aging process is not static. We like to refer to it as the elder-care journey, with many stops along the way. At each stop, however, the cost of care gets higher. Depending on the area of the country one lives, the upper limit—24/7 nursing home care—could be as high as $150,000 per year.
In my experience working in the elder-law field over the past 20 years, seniors and their families overwhelmingly have expressed a desire to age and die at home. They don't want to be placed in a nursing home. That's easier said than done, but that's where the planning part becomes so critical.
To understand why planning ahead is key, we must first examine the several ways to pay for long-term care. We can place them into three categories. One way is privately with your own funds. The second is with long-term care insurance benefits. And the third is with government benefits. These government benefit programs, however, are need-based and there are strict asset and income limits to qualify.
THE LTC TRIPOD
Next, we must establish the necessary level of care. Of course, paying out of your own pocket will always work, at least until the money runs out. That isn't the case when we talk about long-term-care insurance or government benefits. Each may be an option, depending on what type of care is needed. Long-term care insurance may cover some or all of the cost for home care, assisted living or nursing home care. The greater the coverage, the greater the premium. Many people, in an effort to keep the cost down, and blindly believing that they will never need care, will buy less than what they later discover they need. By then it is too late to increase the benefit levels.
Government benefit programs are the third leg of the long-term-care tripod. What still surprises many Americans is that Medicare, which is an entitlement program, does not pay for long-term care. It only covers skilled care, and for a limited period of time, not more than 100 days with a co-pay for the final 80 days. It does not cover custodial care, which is the type of care that seniors with dementia, Alzheimer's, Parkinson's and other diseases with no cure, are likely to need.
The two programs we primarily work with are Medicaid and VA Aid and Attendance programs. It is here that we can illustrate how critical early planning is to the goal of aging at home and staying out of a nursing facility. Medicaid is the primary program that pays for long-term care. It is a needs-based program, meaning one must meet strict financial eligibility requirements to qualify. For that reason many people assume it is for "the poor." In fact, many Medicaid recipients are solidly middle class when their long-term care needs begin.
Medicaid is a combined federal and state program. The federal government provides funds to each state with certain requirements as to whom Medicaid benefits must be offered. However, the states administer the programs. Each state has its own additional rules and regulations, and can offer benefits to other individuals beyond those that the federal government mandates. In reality, Medicaid isn't one monolithic program, but rather a series of individual programs under the "Medicaid umbrella." Many of the rules are the same for the collective programs but there are also some very significant differences. And that is where the traps lie for the unwary and the unprepared who want to stay at home as they continue to age. As we often explain, Medicaid is biased toward nursing home care.
In many states, qualifying for home-based Medicaid is more restrictive than for nursing home Medicaid. If I need 24/7 nursing home-level care and I am able to qualify for Medicaid, it will cover it if I am indeed in a nursing home. However, if I want to duplicate that care at home instead, and I have no more money or long-term-care insurance benefits, then Medicaid will cover some of my care, but not necessarily all of it. That's because many states will only pay up to a certain point.
New Jersey, for example, will only cover about 40 hours of care a week, which leaves an infirmed person in a quandary. They would have to spend money first to be able to get the government to pay for their care, only to discover that it won't cover all of their needs. The individual can't pay for the rest of what is needed because it's already gone. So what does this person do if they require round the clock care? They must go to a nursing home and then Medicaid will cover 100%. That's what we call the institutional bias.
How do we avoid this situation? By planning ahead so that we can tap into the other sources of payment before the client's own funds are entirely exhausted. One great source of benefits available to wartime veterans and their spouses is the VA Aid and Attendance program. While this program works well for any level of need, it is especially helpful to veterans and their spouses who want to stay at home but need home aides. The program provides a pension of as much as $1,949 per month of tax-free income that the senior can use toward his or her expenses. The Aid and Attendance program is also needs-based with financial requirements.
Some of those requirements are similar to Medicaid, and some are significantly different. Exploring the possibilities, there are ways to plan ahead and utilize both insurance and government benefits to stretch out the client's assets and increase the ability to stay at home.
One of our clients' greatest fears is running out of money. When that happens, options become limited. Sometimes nursing home care is the best placement option for health reasons. The pity, however, is when nursing home care is the only option because of financial reasons. A well-crafted long-term care plan is the best way to avoid that outcome and help your elderly clients stay at home.
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