Will You Outlive Your Assets?

When I was about to turn 16, I had saved around $1,500. Most of it came from working in tobacco the three prior summers. I was excited to spend it all on a 1974 Volkswagen. A few years later, my wife and I used all of our savings for a down payment on our first house. We didn’t mind doing without a few things while we saved because owning a house was a priority.  But I don’t feel the same way about paying for a nursing home. It is not that I don’t think I should have to pay for it. I just don’t like the idea of working my whole life and saving to pay for something that I don’t really want. 

I hope I never need long-term care. Unfortunately, the odds aren’t in my favor. About 70% of people over the age of 65 will require at least a temporary stay in a long-term care facility. One-third of seniors will develop some form of dementia. These numbers have all kinds of implications. There are two related issues that I deal with every day. The first is that if you live long enough, someone will have to make decisions for you. The second is that there may come a time when you can’t live at home. You need to plan for both.

You should not assume that because you have a Will and power of attorney, you have sufficient incapacity protections in place. Incapacity planning is one of the most important components of an overall estate plan. I have seen the hurt feelings and permanent damage to families when a child files a petition to have a parent declared incompetent. I have seen the loss of dignity and control when that petition is granted. And I have seen both of those happen when the parent had a power of attorney in place. Dignity and control are two things that I value. So I have a detailed plan in place for the transition of decision-making authority upon my incapacity.

We can fix that problem as long as you have the ability to make decisions. But planning for long-term care is more complicated. It is important to understand that Medicare will only pay for certain short-term stays in a rehab facility. Longer stays are not covered. And Medicare never pays for assisted living. Your medical insurance also will not pay for long-term care either. That leaves three possibilities. You can pay for it yourself. You can purchase insurance to pay for long-term care. Or, if you qualify, there are several government programs that may help.

The eligibility rules for government programs aren’t fair or logical. I know of some people who have no money, but still do not qualify for help. And I know of others whom I would consider wealthy, but are receiving benefits. The VA has recently proposed new rules that would make qualifying for VA Aid and Attendance more difficult. It is hard for me to imagine that Medicaid can continue to provide the same level of coverage in the future. The number of senior citizens in North Carolina is projected to double between 2010 and 2030. The number of workers per every social security beneficiary will drop from the current 2.8 to 2.2 by 2035. We will have twice as many seniors, and fewer people working and paying taxes. It is probably not wise to rely on Medicaid to pay for nursing home care.    

Many seniors need assisted living rather that skilled nursing. In Wilson County, we have the same number of assisted living facilities as skilled nursing facilities. Medicaid does not help pay for assisted living facilities in North Carolina. The program that helps low-income seniors pay for assisted living is called State-County Special Assistance. There are very strict income limits for Special Assistance, and most people do not qualify. If you are a veteran who served during a period of war, or the surviving spouse of such a veteran, you may qualify for VA Aid and Attendance, which will provide some help for assisted living. These limited options for help leave the majority of people without government assistance for assisted living.   

Obtaining assistance to pay for long-term care of any type is already difficult, and will likely become more difficult. But this doesn’t mean that you should ignore long-term care planning. On the contrary, it means that you must plan for it. In order to do so, you must understand the legal, financial and tax issues involved. As part of your overall plan to pay for long-term care, you may wish to preserve certain specific assets, such as a family farm or a cash reserve, even under a worst-case scenario. You also may wish to purchase a long-term care insurance policy or some type of hybrid insurance policy to shift the risk to an insurance company. Or you may decide that you can self insure.

To make these decisions, you must evaluate several factors, including your income, your standard of living, the type and value of your assets, and family dynamics. You must understand the legal, financial and tax issues that affect your plan. And you must design a plan that takes all of these things into account.

If you don’t plan for long-term care, you are leaving your well-being to chance. You are also setting yourself up for the possibility of having to spend your life savings on a nursing home and still having the State Medicaid Agency force the sale of your house after your death. You need a team of advisors to help guide you through that process. We would be happy to be a part of that team.

UPDATE: The VA published its final rules on September 18, 2018. The scope of the new rules is beyond what can be posted here. Please seek updated information.