For most Americans, our home is are largest asset. My last column focused on how people can use “life estates,” to protect either their home or its value. This column will focus on the use of family and insurance.
First a bit of background. The average net worth of Americans ages 65 to 74 is $190,000. Nearly seven in ten own a house, the average value of which is $150,000. (Source: Federal Reserve Board, Survey of Consumer Finances, 2004)
The American dream starts at home. The threat is nursing home care. We are living longer. A married couple that celebrates each other’s 65 birthday has a 60 percent chance that one will be blowing out 90 candles on a cake. (U.S. Census Bureau) When we live this long, we often need help. And help is expensive. In Connecticut, average home care costs $25 an hour. Assisted Living is at least $3,500 a month. Nursing home care tops $300 a day. (Source: MetLife Mature Market Institute 2007)
The bill is often first paid from bank accounts, then the home, if not protected, and then the state, if needed. In Connecticut, the average nursing home resident is a single woman at least 85 years-old on state support. (Source: State of Connecticut Annual Nursing Facility Census, September 30, 2007) This means she has $1,600 or less to her name.
One way to protect a home is through the use of long-term care insurance. In Connecticut, the state and the insurance industry have combined to offer Partnership policies. These policies provided dollar for dollar asset protection. This means that for every dollar a policy pays on a person’s behalf, that person can keep a dollar of assets over and above any limits set by Medicaid. For example, a person with a five year policy that paid $250 a day for at home, assisted living, or nursing home care would be able to protect $456,250 in assets. This is in addition to the $1,600. In many cases, this would protect the value of the home. So if the house was valued at $450,000, the entire value would be at risk of Medicaid recovery in absence of a partnership policy. With the above referenced partnership policy, the house could be protected under the $456,250 pay out from the insurance company.
Not all policies are Partnership policies. If asset protection is an important goal, one should ensure that they at least consider this option.
In addition to insurance, family members can play a critical role in protecting the house, provided that there is advanced planning. A house can either be considered countable asset or an excluded asset for Medicaid purposes. They key it to make it an excluded asset. This can be done with the help of family members.
First, the value of a house is protected if a spouse lives there. There is a general rule that $750,000 of equity can be protected. But with a spouse living in the house, the sky is the limit. In addition, if a sibling with an equity ownership position has lived in the house for at least one year, the house can be protected. If an minor child or adult child with disabilities resides in the house, it can be protected.
Finally, there is the adult child caregiver rule. If an adult child has lived in the house for at least two years and in so doing has kept a person from entering a nursing home, the house can be transferred to the child without fear of Medicaid recovery. It is important that the care be documented by a medical professional. As always, it is important to work with professionals including an attorney who understand the nuances of how the laws are applied in this area.
Some strong themes should be emerging from my last two columns. First, that there are many ways for seniors to protect the value of their homes, should they require long-term care. Second, each of these strategies requires advanced planning. Third, family is a tremendous resource. Finally, that it’s important to consult with qualified professionals who can help you and your loved ones sort through the options and pick a combination of strategies customized to your hopes, dreams, and desires. There is very little that can’t be accomplished, provided one sets the goal, takes the time to plan, and takes action.