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The Long-Term-Care Puzzle Gets Tougher
( Page 3 of 3 )
May 2006
If you’re single and your home equity exceeds the
ceiling, you can use the equity to pay for care by selling
the property, borrowing against the equity or
using a reverse mortgage. Even if you’re married and
your spouse needs long-term care, taking out a
reverse mortgage may be a good option if you don’t
want to touch your retirement portfolio. Reverse
mortgages allow homeowners age 62 and older to
receive a portion of the equity in a lump sum,
monthly installments or a line of credit; no repayment
is due until you move, die or sell the house.
There are limits to the amount you can tap—
$172,632 in rural areas and $312,896 in cities—but
that should get your spouse through several years of
care. Peter Bell, president of the National Reverse
Mortgage Lenders Association, suggests using a
reverse mortgage for home-health services instead of
nursing-home care. You can use the money to pay for
home aides, ramps, or renovations to make a bathroom
or kitchen more accessible.
Consider an irrevocable trust. If you and your
spouse are relatively healthy and it’s unlikely that
you’ll need care for at least five years, you could set
up an asset-protection trust. Let’s say you and your
spouse have $450,000 in an investment portfolio.
You could place $200,000 in the trust for your children,
for example. If in the sixth year one of you
enters a nursing home, the spouse at home could
keep about $100,000, and the other $150,000 outside
the trust would pay for long-term care. Once the
$150,000 is depleted, the money inside the trust is
protected, no matter how long the care lasts.
But because the trust is irrevocable, neither you
nor your spouse can touch the principal, although
you can get income. And if you need nursing-home
care before the five-year lookback period is over, the
money in the trust will be considered transferred
assets that will trigger the penalty period.
Purchase an annuity. If a spouse goes into a nursing
home, the stay-at-home spouse can buy a special
type of irrevocable immediate annuity that, in most
states, is not considered a transfer for purposes of
Medicaid eligibility. As an example, a couple has
$200,000 and the husband goes into a nursing home.
The wife could buy a $100,000 annuity (she can keep
the other $100,000), and her husband would become
eligible for Medicaid.
A single person with $100,000 could also buy a
Medicaid-exempt annuity with a set payout period,
says John Campbell, a lawyer in Denver. Under the
new law, he or she would be required to name the
state as beneficiary. If he or she later goes into a nursing
home and then dies, Medicaid can claim what’s
left in the annuity up to the amount it paid for care.
Reconsider gift giving. The new law is not
intended to penalize individuals who give gifts without
intending to skirt the Medicaid law. Still, proving
your good intentions might be difficult if you
give too much away. For example, if you give
$25,000 to each of your three grandchildren to pay
for college and then need nursing-home care two
years from now, those gifts may reduce your chances
of receiving Medicaid even after spending down your
other assets on care. So make sure that you have
enough money to pay for several years of long-term
care before making big gifts to relatives and charities.
The new law goes into effect automatically in
some states, but other states will have to vote on how
to proceed. Regardless, any transfers made before
February 8 are not subject to the change in law.
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