Long-term Care Planning.

Oast & Hook can help you protect your assets from the cost of nursing home or other long-term care expenses while providing security for your spouse and a legacy for children.

According to a study published by the New England Journal of Medicine almost half of all Americans will spend some time in a nursing home. The average cost of a nursing home in the United States is approximately $5,000 per month, and in some areas it exceeds $10,000 per month.

There are five ways to pay for a nursing home: 1) private pay, 2) long-term care insurance, 3) Medicare, 4) Veterans benefits, and 5) Medicaid. Only about 5% of Americans have long-term care insurance. Many are uninsurable or cannot afford such insurance. At most, Medicare pays part of the first 100 days of your stay.

Less than 1% of nursing home residents are receiving Veterans benefits.

For all practical purposes, in the United States the only "insurance" plan for long-term institutional care is Medicaid. Medicare only pays for approximately 2% of skilled nursing care in the United States. Private insurance pays for even less. The result is that most people pay out of their own pockets for long-term care until they become eligible for Medicaid. While Medicare is an entitlement program, Medicaid is a form of welfare-or at least that is how it began. To be eligible, you must become "impoverished" under the program's guidelines.

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The Medicaid program is a partnership of the federal government and the state government. Each state submits its Medicaid program to the federal government for approval. After approval, the federal government assists with the funding of the state Medicaid program. Every state program is different, and the differences between the state programs are significant. The programs of other states differ from Virginia's program.

A Medicaid recipient is usually allowed to retain a small amount of countable assets. If the person is married, the Community Spouse is allowed to retain a portion of the couple's countable assets. For calendar year 2010 the Community Spouse is allowed to retain one-half of the countable assets with a minimum of $21,912 and a maximum of $109,560.

Certain assets are not counted, such as a home (under certain circumstances), an automobile, personal effects, wedding and engagement rings, medical equipment, and certain types of burial funds. In a situation where there is a married couple, the assets of both the husband and wife are combined. This is true notwithstanding the fact that a prenuptial agreement may have been signed.

For Medicaid penalty purposes there is a 36-month lookback for transfers to an individual and a 60-month lookback for transfers to a trust for all transfers made prior to February 8, 2006. For transfers made after February 8, 2006, there is a 60-month lookback for all transfers. If the transfers are made during the lookback period, they are penalized.

The penalty is a period of ineligibility for Medicaid.

The penalty is calculated by dividing the uncompensated value of the transferred assets by the state divisor which is based on the average cost of a semi-private room in a nursing home in that state or region of the state. The penalty can be longer than 36 or 60 months or it can be shorter. Transfers made by either the Institutionalized Spouse or the Community Spouse to third parties are penalized. Transfers between spouses and transfers to certain disabled persons are exempt from the Medicaid transfer penalty.

Long-term care planning also involves a number of tax considerations. These relate to income tax, gift tax, and, possibly, federal estate tax. Failure to comply with the tax law in designing a long-term care plan usually results in the payment of significant extra taxes. By designing a long-term care plan with prudent tax planning, significant savings can be achieved.

The key to long-term care planning is to act quickly. Failure to act eventually costs a considerable amount of money. If the nursing home cost is $4,000 per month, then the cost of delayed planning is an additional $4,000 times the months of delay in planning. It is possible to protect significant assets by planning early. In those cases where planning was not done and the person is already in a nursing home, assets can still be protected, but the earlier the planning is done, the more money is saved.

Married persons care about their spouses, children care about their parents, parents care about their children. By proper planning, the security of the Community Spouse can be maintained and a legacy can be preserved for the children. Please keep in mind that with the enactment of the Deficit Reduction Act of 2005, even small innocent gifts made without the purpose of asset protection planning can cause significant periods of ineligibility, which will not begin until you are "impoverished" and in the nursing home. Therefore, early planning is even more critical, as is "crisis" planning.