Ep. 12 - Long-Term Care Planning - All You Need to Know!

Welcome to the Good Steward Law and Wealth Podcast, where host Ledly Jennings explores law and finance to help listeners become better stewards of their wealth. Each episode covers the latest trends and strategies in estate planning, elder law, investment, and wealth management. Tune in for the knowledge and tools for financial success and security.

Welcome back to the Good Steward Law and Wealth Podcast. I'm Ledly Jennings, your host, and I'm excited today to, uh, talk about long-term care planning and all that that involves. Um, so pretty topic that's relevant for a lot of people, um, especially those caregivers that have aging parents. Um, this is a topic that's front of mind, so I wanted to dive into it. It's something I see in my office every day. Um, what is long-term care planning when you hear that? Well, it's simply how you plan for your long-term care. Um, it could be nursing home care, it could be assisted living or some form of that, or it could be in-home care. Um, basically when you get to the age where you can't take care of yourself fully, or you just need a little help, how do you plan for it? And where are you gonna get that care from? So that's what we're gonna talk about. But why is this even a topic of an estate planning, law, and wealth planning podcast? Well, when you hear the cost of everything, you'll see see that it comes into every realm of planning, especially being a good steward of our wealth. So the cost of nursing home care is pretty expensive, and this is a published number by the state of Arkansas where I am. It averages about $8,500 a month for full-fledged nursing home care. That's for one person. So if you have two people, could be upwards of $16,000, $17,000 per month. So it's very expensive. Now there are other options when you talk about Nursing home care is full care. You know, you need help with everything medically, food cooked, bathed, you know, you need a lot of help. Now there is lesser versions of that that they call assisted living. So maybe you just need someone to cook and clean for you and maybe be there to monitor you, but not really full-time care. That's where assisted living comes in. So that cost is, it varies on the type of facility, but I just generally usually say about $4,000 a month, about half the cost of nursing home care. Now, another option is in-home care, and this can vary greatly. A lot of people always say that I want to stay in the home when you can, but you still need care. Sometimes it starts out as partial care. Maybe you need someone to come in once a day to cook and clean for you. Maybe you need someone to come in and work full-time for you, taking care of your needs during the day. Or it can result in full-fledged care in the home, and those costs vary. There are agencies that can handle those services, whether it's full-time care or just some assistance with your day-to-day tasks. Those are the options of long-term care. And so I saw a lot of, you know, the price people— I say that to them, what it costs, and their eyes get really big because it is expensive. And I forget the numbers, but the majority of everyone will have some form of long-term care in their life, whether it's nursing home care, um, or just in-home care of sorts, you will have to think about this at some point in your life. So people come to me wanting to know their options. How do we plan for this and how do we pay for it? Well, the first and best way to pay for it is yourself, uh, private pay. And few people can pay for that. With $8,500 a month, it can be very expensive. When people come to me and we sit down and look at their wealth as a whole and the types of assets that they have, I usually look at if, if you have liquid assets of, and we're talking about a single person, $2 million to $2.5 million, then you could theoretically pay for care off the interest those accounts make and not touch principal. Now you can pay for care a lot longer if you are touching principal, but most of the time people come to me wanting to preserve what they've built and pass something on to their heirs. So that is being a good steward of your wealth. So when we're talking about all these types of planning and things to pay, We're not doing anything that avoids paying what we owe. We're not avoiding taxes. We're not avoiding something that we should be paying. We are not hiding money. We are just planning to the best of our ability using the rules and the laws that we've been given. And I teach people how to navigate those rules and laws to get the most out of what they have. That is, being a good steward of our wealth is getting the most out of what we have to the best of our ability. So that's what we're here talking about. We are not hiding money and we're not avoiding taxes. That, that's not what we do here. Now, some people do do that, but that's not what we do at this law firm. Um, so when we private pay, you can have a million, $2 million to $2.5 million and say it makes 4% interest per year. That would be ballpark enough to cover nursing home care, especially when you add in what you're getting with Social Security. Um, the other option is to have long-term care insurance, and I will have an expert on here to talk more about that on a future episode. But long-term care insurance has had its popularity throughout the years. Uh, used to, you just buy a long-term care policy, you pay for it every month, and if you didn't use it, it would go to waste. The downside to this is it's expensive and it went to waste if you didn't use it. So lately they've introduced a new product, um, that is basically a life insurance policy that has a long-term care rider or an asset-based long-term care policy. And what that does is you pay into the policy, but you're paying to something that builds and grows. So if you use it, great, it's, that's what you paid in for. You use your long-term care, but if you don't, it's left in a benefit to your beneficiaries, like life insurance, um, or that kind of thing. So it's not completely going to waste if you don't use it. So that's a good option for certain people, but you have to start looking at that, um, you You know, when you're in your 50s to early 60s range is usually when you start thinking about this and you're still healthy enough to qualify at an affordable rate for a life insurance policy. So, talk with your advisor about that and we'll certainly guide you through some of that in future episodes. But the main thing that we will talk about here and people come to me for, if you can't private pay and don't have long-term care insurance, who foots the bill? Or is all your assets just gone to pay for nursing home care? Well, generally people would like to get the government to pay for their care if they can't, and that is called Medicaid. So Medicaid is how you pay for long-term care. Um, a lot is said about different types of Medicaid, and there's a few different types of Medicaid, but the main one that we'll talk about today is the one that just pays for long-term care. Some people say, I've got Medicare and that covers me. Um, that is not true. Medicare is kind of like insurance. It pays for your health insurance and the needs that that supplies, but not your long-term care. Uh, it will pay for a certain amount in a nursing home if you're in rehab. I think it's around 100 days. They will pay for you to be in a nursing home in rehab, but beyond that point is when Medicaid has to step in. Um, so how do you qualify for Medicaid? Can anyone just apply and get it? Well, anyone can apply and you can get it if you qualify medically and, um, your assets. So medically, that's usually pretty easy to prove. You need to be in the long-term care facility, you know, doctors, um, DHS will sign off on that saying, yes, they, they need this type of care. So that's the easy part. The hard part is asset-based. So to qualify for Medicaid, um, we look at it in two different, uh, rounds if you're single or if you're married. So if you are single, your assets have to be below $2,000 and your income has to be below about $2,800 per month to qualify for Medicaid. So, um, that's pretty low. Basically, you have to be broke to get on Medicaid. And if you're married, you are the community spouse. They divide you in two sectors, the community spouse and the institutionalized spouse. So the one that's not in the nursing home and the one that is, um, the community spouse can have up to $150,000 in their name. So still a lot higher, um, than $2,000, but there is limits. And the concept with that is they don't want a spouse to have to be broke and desolate, you know, trying to pay for their other spouse's care. They want you to have the money that you can still live off of and maintain your lifestyle. Um, but those two numbers are pretty low. So people think, well, man, I have, have a house and I've got a car and I'm already over that limit just with that. Or if you're single, you're probably over that limit with what's sitting in your checking account. Um, so how do you qualify? Um, well, that's what we come in for is getting people qualified for Medicaid. Um, the first thing what we'll do is when people come to me to pre-plan, they wanna say, Well, I'm well over this $2,000 or married and over this $150,000 mark. How do I qualify? And then most of the time what people are worried about is protecting their home. They don't want to lose their family home to nursing home care. And when I say family home on this, uh, podcast, we're talking about the personal residence that you live in, and it can even include the land surrounding it. Maybe you sit on an acre, 5 acres. Uh, but I had some up to 100 acres that basically a contiguous parcel that your home sits on. That's what we're talking about when you have a home. And I have good news for everyone that's listening, especially if you're in Arkansas, is you can protect your home very easily with a special deed. So typically how this works with your home is Medicaid actually allows you to have a home, so they don't count it as an asset. But when they pay for your care and you pass away, they put a lien on it after you're gone. Um, so when people talk about, I want to protect my home, basically they mean I don't want Medicaid to put a lien on it, or I don't want to have to sell my home to pay for care. So you don't have to sell your home because you're allowed to have a home, but they will put a lien on it unless you have a beneficiary, uh, type deed that we are able to draft that's specific to Arkansas. It's a deed that says when I pass away, my home goes to whoever you name, you know, your kids, my home goes to my kids. You file this deed at the courthouse and it protects your home from Medicaid liens. So you do not have to lose your home to nursing home care. Come see me and we can explain the various options to that. Um, the other way we look at it is when people come to me to pre-plan, a lot of times we talk about, well, should I get things out of my name while I'm young, healthy, before I need care so I can eventually qualify for Medicaid. And by that they mean gifting to their kids today or transferring it out of their name in any way. And a gift would mean an outright gift or a transfer for anything below fair market value. So that does work. If you gift things and get it out of your name, then that can get you qualified for Medicaid. But there's some stipulations on that. They have a 5-year lookback period. So if you make a gift and within 5 years you need to go to the nursing home care, then they look back and they still count that asset as yours. Um, so you can't just say, I've got $100,000 I'm going to gift to my kid and then I'm going to apply for Medicaid and it's going to work. Nope. There is a 5-year lookback period and that is 5 years, not 7, not 3. Um, it's changed before, but it is 5 years, um, is what the period is. So what happens if you do make a gift and you have to go to the nursing home? Well, they, uh, they assess a penalty. Um, and the number for Arkansas, it just happens to be the cost of care, average cost of care for that per month of a nursing home. So $8,500. Let's say you gifted $100,000 to your kid. Then you take that $100,000 and divide it by $8,500. And that gives us, uh, 11.7. So let's just call it 12 months. That means for 12 months, Medicaid will not pay for nursing home care. So during that 12 months, because you made a gift, you have to, uh, pay for it out of your pocket, um, privately. So if I'm talking with clients and our plan is to make a gift to get things out of their name, we have to be sure that either one, they are not gonna need nursing home care within the next 5 years. Or two, they have enough money liquid elsewhere to pay for that penalty. And that's how I always advise looking at it, because even if you are healthy and don't think you're going to need nursing home care within 5 years, you, you could always have a stroke or fall, something happens, and boom, just like that, you're in nursing home care, you're in a penalty period, and you can't pay for it. So before you start gifting things away, you need to come talk with me. And we devise a plan that will protect you in all aspects. Um, so gifting things away is a good thing if you do it right. But what are downsides to that? Well, one is you gift an asset, it's not yours. So if you give your kid a $100,000 CD, it's not yours. They can take it, they can do whatever they want to with it. Same with land. If you gift them land, um, your farmland or timberland, they can do whatever they want to with it.. So you lose control and access. Um, most people think their kids would not do that to them, but I have seen things happen. Um, the other downside to gifting outright is there's tax consequences. You've probably heard a lot in the news lately about capital gains, uh, step-up in basis. That's what we're talking about here. So, um, I'll generally describe this. Let's say you own a 100-acre farm that you either bought or inherited at $100 an acre. Then your basis in that property is $10,000. So if you gave that to your kids, they inherit your basis, meaning their basis in the property is $10,000. Well, when you pass away, that property's now worth $250,000. So they owe the capital gains tax difference on that amount. So $240,000, they would owe capital gains tax. Let's just say they're in the 20% bracket, that's about $48,000 that they would owe in tax if they sold it. And that's if you give it outright. But how to avoid that is to create a step-up in basis by allowing them to inherit the asset, whether it's through probate or through a will or through a trust. If they inherit it, then if they sold it the very next day, they would owe no capital gains tax. So they inherit it, their basis is $250,000. They sell it at $250,000. There's no tax owed. So there's two risks of gifting assets is loss of control and ownership and tax risk. So what is the plan that we develop for clients that come in pre-plan? They have this 100-acre farm and they want to make sure it's protected. Well, I usually start with an irrevocable trust. So some people call this type of trust a Medicaid asset protection trust, but what it is is an irrevocable trust that meets certain qualifications. So we talked about revocable trust in another podcast, but irrevocable is the kind that you cannot change. So once you set it up, it's set in stone. And this specific trust has to meet certain qualifications so as DHS and Medicaid will not see it as your asset. So the concept is you set up this trust. You place your land and your farm in the trust, and if you make it 5 years, there's still that 5-year lookback period, but if you make it 5 years, it's considered out of your name. So what's the difference in doing that and gifting outright? Well, if it's in the trust, you as the person that created the trust still have some control. So you can adjust who the trustee is. In some cases, you can change the beneficiaries. You know, if you create a trust and your kids make you mad or don't let you use the property anymore or something like that, you can change who the property is left to. So you maintain some control. But the benefit of it is your kids get a step-up in basis when they inherit it. So you maintain control and your kids get a tax benefit. So the trust is a great way that I usually advise instead of gifting outright. The downside to this type of trust is for it not to count as your asset, you can't be in control of it, meaning you can't be trustee and you can't be a beneficiary of it, lifetime or otherwise. So meaning it's not yours, it's the trust. You do have control. You can use it like if it's your home, you can stay in it. If it's hunting land, you can use the land. But if it makes income, you can't benefit from the income and you can't access principal. So that's the risk of the trust and how we usually set this up is You name a trustee. It could be your kids that are trustee, or it could be a friend, or it could be a corporate trustee like a bank, um, that manages the property on your behalf and follows what the trust says. And you also name a beneficiary. So your kids are the beneficiary of this trust. So technically it is their property because it's in the trust. Um, so the risk with this is you can't benefit from it. So this type of trust only works for certain assets. When, um, clients that come to me, that I do this for, it's for assets that they do not need income from. Think about like a farm, you know, the land that they have, timberland, or, you know, basically a farm and timberland do not produce income regularly that they need. Yes, maybe timberland eventually will be cut and you have that money, but it's not something they need to live off of and maintain their lifestyle. So, those are the type of assets I will put in there. In the rare occasion, I will put larger CDs or investment accounts in there, but it has to be an asset that the owner does not need to live off of. So specific assets. So if you have a farm, if you have timberland, or if you have asset that you do not need to live off of and you want to protect it from long-term care and make sure it goes to your heirs, you need to come see me and we can start talking about an irrevocable trust for you. Um, so that is pre-planning. That's what I like to do. Nothing makes me happier than helping clients protect what they've, uh, spent their life building and protecting a family legacy and heritage. That's what I love doing, and that's what pre-planning is. So the best clients think about this stuff ahead of time, and that's what I want this podcast to be, is where I'm educating you enough to know that you need to be thinking about it. Now, you may not know all the solutions., and I won't know all the solutions till I sit down with you and devise a plan, but at least you know you need to be thinking about it and getting to work. Um, so that's the fun part. Now I do have occasions where it's not as fun and we are in a situation where nobody did pre-planning and, um, mom or dad is going to the nursing home right now. They can't take care of themselves. They had a, they had a stroke or, uh,, fell and just have to go to the nursing home. And then they come to me saying, Ledly Jennings, we have $300,000, we've got a house, we've got all this. There's no way we can go to Medicaid. And now all that mom worked for is gonna be gone. Well, we call this crisis planning because it is somewhat of a crisis, but there is ways to plan for it. So the first thing I do when I sit down and look at assets and they're going to nursing home, we figure out What assets are countable and not countable? And when I say not countable is what does DHS and Medicaid not care about? You know, what, what don't they count? And we mentioned the home. They don't count your home. Um, so the first thing I do is protect the client's home with a special deed that we discussed to protect it from liens. Um, the other things they don't count is funeral expenses. You know, you can purchase an irrevocable funeral policy. They don't count that. They don't count one car. You're allowed to have one car. Um, and they generally do— don't count, um, household furnishings, personal property, stuff like that. They generally don't count that. Um, so those are not countable. So once we separate all that, we add up what is countable and figure out what is our actual number. How much are we over this $150,000 mark for a married couple or $200,000 for single? And basically to do that, you look at all your accounts, your investment accounts, your bank accounts, all that, add up a balance. And those are easy because they have a balance. You know what they're worth. But you have to look at some other assets that not many people think about. Um, one of those would be life insurance. Um, if it's a term policy, that does not have a value. But a, um, whole life policy that has cash value, you have to count that as an asset. So if you have a life insurance policy, check and see if there is cash value. If there is, that cash value is part of your estate for these purposes. The other thing we look at is other land. So they don't count the home, but they do count other homes. Like if you own a condo on the lake or timberland, something separate from your home, they count that. And how we get the value of it typically is you look at your property assessment look at the assessed value and multiply it by 5. That's what they see it as being worth. Oil and gas interest is another thing that slips through the cracks a lot, is maybe you're getting a $100 check a month and you don't really think about it from mineral interest that you own. But that is accountable asset. The income goes toward your income, and the asset itself is you take the value, typically what it pays you per year, and multiply that times 5, and that's what it's worth. So basically we add up all the assets that you have and get a number. Let's say we're at $300,000 total. What do we do with that? How do we get qualified? Well, the first thing I do is some people call it a spend down, but I don't like to think of it as spending money because I will never waste money and spend things down. What we do is spend it on things that you need. So like your home is an asset that you're allowed to have. So I ask the spouse, um, how is your home? Is there anything we need to improve? Is it up to date? Maybe they say, I need a new roof, or the AC unit is about to go out, or, um, we need to adjust the bathroom so I can fit in with my wheelchair. You know, that type of stuff is a way we can spend money on an asset that we are going to keep, and it increases the value of the home. Therefore, we are not wasting the money. So that's the first place I'll look is what can we buy, um, that will increase in value. The next thing is if they do not have a funeral, uh, policy, we purchase an irrevocable funeral policy. So, um, you know, those can be upward $10,000 to $20,000. And if you're counting for two people, you know, $20,000, $25,000 for both of them, we purchase those. The next thing is a car. Sometimes they have a car, it's paid off, they love it. But really, you need a van that can carry your, um, family around. You know, you need it to be wheelchair accessible. You need it to meet certain standards so we can go purchase a car. Um, so those are the 3 things that I start with doing. And say we started out with $300,000 and we upgraded the house, we spent down on things we could, and now we're down to $200,000. Well, what do we do with that? Um, That is where creative planning comes in with Medicaid-compliant annuities. Some people do promissory notes, some people do annuities, but generally, if you're married, we take that $200,000 and take it from an asset and turn it into income with a special compliant annuity. And that way the income goes to the community spouse, the spouse that's there. So the asset's not going to waste. It's just no longer an asset. It turns into something that pays them monthly., so that is a way to protect basically everything you have. And those annuities are very specialized. There's only a few companies that do it. I always work with, uh, Ashbur, A-S-H-B-E-R. Um, they've been really good working with clients and they know the Medicaid compliance space like better than anybody. And also that's where I go to get these free resources where you want to see, um, what's the penalty period for my state or what is the minimum allowance for my state. Those numbers change every year and ASHPRA produces a chart that shows you that for each state. So that's what I have up on my screen right now to make sure I knew that $154,000 is the max that a spouse can have. That number is published. So I would look at that. And that's with a married couple. Not to get too complicated or too into it, but if you're single, an annuity can still work, but you have to, do a different type of annuity and save a certain amount. So basically when you're married, you turn that annuity into income for the spouse, but how do you turn it into income if you don't have a spouse? Well, the strategy is, you know, you have a, say we're at that $200,000 mark and we want to give it away to our kids. Well, if we give it away to our kids, we're going to incur a penalty period. And basically that whole asset's going to go back to nursing home care because we're paying privately. What you can do is gift about half of it away, turn the other half into annuity that pays for the care for that half of the amount of gift you have for half that time, and then you've saved half the estate. So it gets a little complicated, but all that to say is if when you come to us and you're in a crisis planning mode, if you're married, we can save a great deal of it. Single, we can still save well over half of an estate depending on, you know, how things are set up. And each situation varies, but there are options out there. So, um, I guess the takeaways I see with this that I want people to know is pre-planning is the way to go. And Medicaid planning can be complicated. Not many attorneys know these ins and outs of rules. You have to wake up each day and focus on this and think about it and follow the changes in the laws. So make sure you go to an elder law attorney for advice on this type of stuff and plan ahead because just because you have assets and you can pay for care, there's no need that it should all go to pay for nursing home care when there's other options to save what you've spent your life working for and pass it on to your beneficiaries. And that's exactly what we're doing is getting the best and highest use out of our assets that we have built and be good stewards of our wealth. So that's it. I'll see you next time.

Thank you. Thank you for tuning in to the Good Steward Law and Wealth Podcast. If you're ready to take control of your financial future, visit goodstewardfirm.com to book a meeting and sign up for our newsletter.