“The Middle-Class Dilemma: Funding Long-Term Care Without Insurance,” by Michael Lynch, The Street
“The key to these strategies is to appear poor to the government. In other words, be legally poor, while still having access to funds or preserving money for loved ones. Here’s where a good team of financial advisers can really earn its pay. … The value of houses can be preserved with trusts, life use deeds, outright gifts and children. Yes, kids can be useful here. Disabled children will preserve the house for their lifetime. Under federal law, if other children keep you from needing institutional care for two years, they too can inherit the house. You can even sell your house and purchase the right to live in theirs. Speaking of kids, it’s not typically a good strategy to give money to them in hopes of getting under Medicaid limits. You can, however, pay them to do the stuff that they should, in fact, be doing for free. Given the proliferation of home health care agencies and other support for the elderly, it’s not hard to determine real market rates, create a care contract and spend the money. There are trusts. These are not typically last-minute silver bullets. But if you create and fund them prior to need, they can preserve substantial assets. The assets they can own run the gamut from investments to annuities, real estate and, of course, life insurance. Why life insurance? Because it creates money from thin air in a tax-efficient way, provided of course that required premiums were paid. This is a perfect combination to protect wealth from a long-term care event. By way of illustration, a person may be funding her high nursing home bill from IRA distributions (IRAs can’t be moved to trusts without devastating income tax consequences). She’s spent down her assets $500,000 by her death. At that time, a $500,000 life insurance policy in a properly structured trust could replace every dollar she spent.”
LTC Comment, Stephen A. Moses, President, Center for Long-Term Care Reform:
This screed on how to hide money and get Medicaid to pay for LTC neglects to mention a few important details. While it is easy for the middle class and affluent to qualify for Medicaid LTC benefits, such financially comfortable people consume resources intended for the poor. They load up the welfare program with recipients who should, could and would pay their own way if it weren’t for loopholes in the law that let them take advantage. They send the message to their progeny and to the public in general that there is no need to save, invest or insure for LTC because the government has your back. As the programs that have promised to care for the elderly—Social Security, Medicare, and Medicaid—slip into insolvency, everyone who took this author’s advice will pay the price for their irresponsibility.