Solving Only One-Half of the Problem (Part 2)
Last week I was telling you about a very typical call in our office. Joe and Mary went to see an attorney to get their affairs in order when they learned that Mary had dementia. It was a little more than 3 years later – when he could no longer care for Mary at home – that Joe called me, panic stricken, when he learned what it would cost to place Mary in a facility.
Joe took care of his estate planning need – what happens when he and/or Mary dies. But he didn’t address the problem of what happens if they live and one or both of them need long term care at a cost of as much as $11,000 to $13,000 a month. It’s what I call the “second-half” of the problem.
What Joe and Mary needed 3 years ago was a long term care asset protection plan which would enable them to pay for the care that Mary needs but allow them to qualify for Medicaid in the event Joe had to put Mary into a facility – without putting Joe in the poorhouse. Had they placed assets into an asset protection trust then, Mary could have qualified for Medicaid in less than2 years from now.
I explained this to Joe but knew it wasn’t all that helpful to him now. “What can/should I do now to help solve my problem”, he asked. Joe still had some options. As the healthy spouse, Joe is entitled to keep a home (as long as he is living in it) no matter the value and approximately $120,000 in order for Mary to qualify for Medicaid. He told me they had $600,000 and a home worth $400,000.
I explained that he could sell his home and take the proceeds and enough of the $600,000 to buy a new home so that he would then own a home and $120,000. His reaction was similar to many of my clients when I first pose this solution. He wasn’t thrilled with the prospect of having to move. He also told me that $400,000 of his investments are in retirement accounts so that he when he withdraws that money he must pay taxes on it.
Another option is to take $500,000 and buy something called a Medicaid compliant annuity which converts the asset to income payable to Joe as the healthy spouse. However, he wasn’t crazy about that either because once done it can’t be undone. He locks into a monthly income for the rest of his life which he can’t undo.
I told him the 3rd option is to do no planning but simply pay the nursing home bill each month. If Mary lives long enough he’ll get the savings spent down to $120,000. If she passes away before then he can keep what is left. Understandably, he didn’t like that idea either.
I told him he was lucky because at least he has options. The lesson to be learned, however, is that what Joe should have done 3+ years ago, when he thought he was getting his affairs in order, was to take care of the whole problem. That means addressing the questions “what happens if I die” but also “what happens if I don’ die but get sick first and have a $150,000 long term care expense”.
Obviously Joe can’t turn back the clock. For those other “Joes” facing the same problem in the future, however, consulting with an elder care attorney who can help solve the whole problem can make the outcome so much more palatable.