Among the many misperceptions regarding Medicaid and long-term care planning is the myth that asset protection planning and long-term care insurance don’t work well together.
Unfortunately, many individuals, including many professionals, believe these two planning options are mutually exclusive and that one negates the need for the other. In fact, a carefully planned and cost-effective strategy to guard against the high costs of long-term care often includes both asset protection planning and long-term care insurance.
When used effectively, Medicaid planning can help individuals reduce prospective costs of long term care insurance, and long-term care insurance can provide certain services that New Jersey Medicaid doesn’t fund. What families need to know is which expenses are worthwhile and which can be cut.
Those looking for the simplest, least expensive asset protection plan must not forget that even partially implemented plans are often useless. Typically, individuals are concerned about protecting their residences from state liens and are willing to engage in legal planning for this purpose. Yet, on occasion, families are unwilling to take further steps that are necessary to protect stock accounts, IRA’s, CD’s, and other assets. Medicaid laws are extremely strict, and the financial requirements are definitive.
To qualify for benefits in New Jersey, an individual must not have countable assets in excess of $2,000, or, under certain programs, $4,000. A spouse’s assets are also subject to limitations. If an individual’s or couple’s liquid assets exceed the Medicaid resource limits, Medicaid will require that these be depleted before benefits begin. Therefore, as with long-term care insurance, certain costs of legal planning can be minimized while others cannot be compromised or the plan will be ineffective.
When engaging in asset protection planning, individuals must create a strategy that includes the possibility of remaining in one’s home and to the extent possible, receiving benefits to pay for in-home care. However, a large percentage of would-be Medicaid applicants are not eligible for in-home care subsidized by Medicaid in New Jersey because their monthly incomes are too high.
This year, the income limit to receive in-home care is $2,022 per month. Because many New Jersey residents are disqualified due to income level from Medicaid home care, individuals who anticipate reasonably high retirement incomes would be wise to purchase long-term care insurance with a home care rider, even if such an option results in somewhat higher premiums.
While trying to minimize costs, individuals cannot compromise certain aspects of the insurance and legal planning. For instance, insurance purchasers must not lose sight of the fact that the benefit amount they choose must cover the cost of care, taking prospective income and other expenses into account. Most of our clients are paying approximately $9,500 per month for a semi-private room in a nursing home and costs in excess of $6,000 in assisted living facilities. In trying to cut costs, purchasers must make sure they have ample coverage. Because the cost of nursing homes rises significantly and rapidly, inflation protection should be considered. Many policies offer this feature and allow the policy owner to pay the same premium over time while coverage increases.
While certain options should not be compromised, implementing a strategy that includes both long-term care insurance and asset protection planning can save individuals substantial assets in life savings and insurance premiums. While cutting the monthly insurance benefit amount is not recommended, individuals can save money on their long-term care insurance purchases by limiting the length of the benefit. Rather than choosing a policy that would pay out over the lifetime of the individual, individuals can still be adequately prepared to meet the costs of long-term care by selecting a policy that pays for nursing home care for a limited period of time.
Five years is an ample amount of time for the insurance benefit period because the Medicaid lookback period for a transfer of assets is set by federal law at 60 months. Those who consider long-term care insurance may wish to select an insurance benefit period of not more than five years. While the benefit period is occurring, the asset protection plan can be implemented and completed so that once the benefit payout ends, the Medicaid applicant can continue receiving the same level of care for which the insurance was paying and make a smooth transition to Medicaid benefits.
Even an insurance payout period as short as three years can make a large difference in clients’ abilities to protect their assets. Depending upon clients’ income and asset levels, many individuals can become eligible for Medicaid in less than five years from the time they first enter a facility. For those clients, a three year insurance payout term would still give a long-term care insurance policy owner ample time to protect savings through an asset protection plan and thereby still meet the primary goals of asset protection. A solid asset protection plan accounts for: reserving enough assets to meet care needs beyond the minimum for which Medicaid pays, protecting the spouse and helping maintain the family home and lifestyle, leaving an inheritance to children, and avoiding state liens.
Because federal law sets the Medicaid lookback period at five years, individuals must begin asset protection planning early to protect their savings. While many clients can become eligible for benefits prior to the expiration of five years from the time they begin asset protection planning, a majority of individuals would be well advised to begin legal planning when the possibility of nursing home care still seems extremely remote. On the other hand, individuals and couples that have purchased long-term care insurance have more flexibility as to when they might decide to begin asset protection planning since their savings will not recede as quickly as the accounts of individuals who are paying an average of $9,500 per month in nursing home care with no long-term care insurance.
Attorney Dana E. Bookbinder focuses much of her practice on elder law, and routinely recommends that clients investigate their long-term care insurance options. She practices with Begley Law Group, P.C., in Moorestown, Princeton, and Stone Harbor, New Jersey where clients seek her expertise in asset protection, disability planning, estate planning, and estate administration. However, when that option is foreclosed, she assists individuals in protecting their life savings through legal planning. When long-term care insurance and an asset protection plan are established in tandem at an early stage, these separate strategies will work together harmoniously to comprise a comprehensive, protective plan that maximizes savings for families.
Ms. Bookbinder has been certified as an Elder Law Attorney by the ABA accredited National Elder Law Foundation. She is a past Chair of the Elder and Disability Law Section of the New Jersey State Bar Association and past chair of the Burlington County Probate Committee. She has authored several articles on legal devices for asset, estate and tax planning in publications including the New Jersey Law Journal’s Financial Planning Supplement. She also lectures to civic and retirement groups and holds seminars sponsored by the New Jersey State Bar Association. She is also a member of NAELA and a life member of The National Registry of Who’s Who. Ms. Bookbinder is a member of the New Jersey State, Pennsylvania and District of Columbia Bar Associations. She received her bachelor’s degree with distinction from Cornell University and her juris doctor degree from The George Washington University Law School.