Long Term Care and How To Fund It. Daniel Timins, Esq., CFP® on behalf of the Financial Planning Association of Metro New York February 5, 2019 In partnership with The New York Public Library Science, Industry and Business Library

Disclaimer All information contained herein is for informational purposes only. It should not be considered legal advice. Please consult an attorney or appropriate financial professional before taking any steps based on this information. The information provided herein is subject to change on an annual basis or more frequently. Any tax information provided herein is strictly incidental and not provided from a tax preparation professional. Any references to investment gains are based on past results, and are not a guarantee as to the future. All viewpoints and opinions are those of the speak and not any sponsor or institution where the speaker is presenting or sharing information.

What Are We Talking About? Providing for personal care as we or our family members age Providing an opportunity to stay in our homes while receiving care Preserving family wealth Preparing for many years of care

Who Are the Central Players? Individual in Need Family Members (sometimes) Health Care Agent “Attorney in Fact” on Power of Attorney Professional Caregivers Geriatric Care Manager / Social Worker Estate / Elder Law Attorney Financial Planner

Congratulations! You have lived to a ripe age! You have had many experiences You may have substantial assets You may (or may not) have family

The Need: Activities of Daily Living ACTIVITIES OF DAILY LIVING (“ADLs”) Transferring (Ie. Walking) Bathing Dressing Eating Continence Toileting

LTC versus Medicaid LTC Medicaid Oversight Insurance Company Government (DSS) Who Gets It? People who can afford it Impoverished people Costs Insurance Premiums Legal Fees Quality Care Typically Quite Good Varies Asset Transfers No problem Heavily regulated Asset / Income Limits None Both Apply, and “Payer of Last Resort Can family members get paid for care? Sometime, and at a decent rate Rarely (but possible), but not much

LTC Insurance to the Rescue! Long Term Care Insurance = Private Pay Pays for Home Care: a certified caregiver comes to your home to assist you with your ADLs OR Pays for Nursing Home Care A need for more constant care Trained staff on-site (such as nurses)

LTC is NOT… Medicare Medicaid Health Insurance Disability Insurance Life Insurance

LTC: How the Benefit Works Example: $250 per day for 5 years $250 x 365 days x 5 years = $456,250 $456,250 is usually your guaranteed amount This is your “Insurance Pool” If you use it slower = lasts longer If you use it faster = lasts less time

Other Optional Aspects Cost of Living Adjustment $150 per day @ 2014 levels; increases 5% per year Life Insurance / LTC Hybrid Policies Home Care % lower than Institutional Care

Coverage Caveats Some policies pay less for home care than nursing home care Example: $250 per day for Nursing Home $125 Per day for Home Care

LTC: What Effects Premiums? Age Health Coverage / Policy Options Waiting Period $ Amount per day Amount of years of care Is Home Care % same as Nursing Home Coverage? Cost of Living adjustments

Old-School LTC Policy Problems These were “stand alone” policies (I.e. no life insurance coverage) Very few lapsed policies! Lapsed policies were built into premium prices Insurance companies losing money!!! Insurance Company “Fixes” – for new AND existing policies: Premiums raised Coverage Terms decreased

Most New Policies are LTC / Life Insurance Hybrids You buy a life insurance policy with a “rider” that pays for LTC Any money used on LTC decreases your eventual life insurance payment Prices tend to be higher than old stand-alone policies, but allows insurance companies to have a larger pool of participants These are “Permanent” life insurance policies with cash value

Types of Medicaid Community Care Institutional The type of Medicaid benefit you receive determines “look back” periods (I.e. the penalty for transferring assets) Community Care Personal care, physical therapy, home health care and home health aid services; clinical or out-patient basis; includes physicians, dentists, pharmaceutical, nursery Institutional Hospitals, medical facilities, nursing homes

Medicaid: What does “Home care” cover? A paid caregiver to assist with ADLs No guarantee as to how many hours you will receive daily No cleaning or fancy cooking (warming up food okay) A caregiver must be qualified individually or by a Medicaid- compliant agency EVERYONE prefers home care to nursing home care… …but it is hard to get 24 hour home care And if you need a nurse during any 24 hour period, you may be required to go to a nursing home to get benefits

Medicaid: “But I don’t want to go to a Nursing Home!!” NO ONE wants you to be in the nursing home while on Medicaid: Not you, not your family, not even the nursing home! You probably have to be there because you need nursing staff available during a 24 hour period “Okay, I feel better now…how do I get out of here?” Nursing facility will want to see their suggested amount of homecare employees in place before you are released Anyone with mental competency can “release” themselves voluntarily Nursing home can’t force you out once admitted

Financial Eligibility Requirements for an Individual Eligibility is based on people who are “Medically Needy,” “Categorically Needy” and “Legal US Residents” Medicaid is “Means Tested,” meaning the recipient must have limited financial means ASSETS $15,450 in the recipient’s name EXCEPTIONS: “Burial Allowance” in Irrevocable Burial Trust Life Insurance: $1,500 cash value Personal Property (unlimited) Your House (ONLY for Home & Community care) Supplemental Needs Trusts Medicaid Trusts Retirement Plans (IRAs) are exempted from assets if they are in “payout status” (Required Minimum Distributions or Separate and Equal Periodic Payments if recipient is under age 59 ½), in which case payments are included in Income MONTHLY INCOME HOME CARE: $859 per month Any excess income must go to the recipient’s “SPEND DOWN” INSTITUTIONAL (at a Nursing Home): ALL of the recipient’s monthly income in excess fo $50 must be paid to the NH to offset Medicaid payments

Transfer Penalties Home & Community Care Nursing Home Department of Social Services and Medicaid impose a “Look Back Period” for transferring assets outside of the proposed recipient’s name Home & Community Care 1 MONTH Lookback One Strategy: Transfer all financial assets (except $15,450) to a non-spouse, wait one month for bank statements to be updated, then apply for Home Care. DOWNSIDE: If the recipient needs Nursing Home care the 5 Year Look back rule applies Nursing Home 5 Year Lookback Period, and the Homestead can be attached by Medicaid  Its ALL OR NONE EXAMPLE: In January, 2016 Mary transfers her Coop and most of her assets to her son Joe (total of $280,000), and applies for Home Care. In March 2014 Mary goes to a Nursing Home. She failed to make the 5 year Look back (4 years & 2 months). Nursing Home Care in Manhattan equals approximately $12,000 per month. $280,000 (amount gifted) = 23.3 MONTH $12,000 (monthly benefit) “Penalty Period” Medicaid will not pay Mary’s Nursing Home benefits for 23 months. ..and Joe is liable. Joe should have paid for Mary’s care for 10 more months to get through Mary’s Look Back Period.

Some Exceptions Exist Homestead Exemptions: Well Spouse Home Care  No lien on house if <$858,000 Child caregiver who has lived in home for 2+ years Sibling co-owner who has lived in home for 1+ year Disabled Children (in fact, they receive many exemptions) Retirement Plans: as long as RMDs are coming out, the asset is protected / excluded Medicaid Trusts Spousal Refusal

Retirement Plan “RMDs” Includes: IRAs, 401(k)s, 403(b)s, certain pensions, etc. Owner must begin taking Required Minimum Distributions [“RMDs”] the year after he/she turns 70 ½ (most people do it at 70 ½)  This is called a “Required Begin Date” ***If you are taking RMDs your retirement plan’s value is excluded from Asset testing, and only applies to Income testing

RMDs for You Age % to Distribute 70 3.65 % 80 5.35 % 90 8.77 % 71 3.77 % 81 5.59 % 91 9.26 % 72 3.91 % 82 5.85 % 92 9.80 % 73 4.05 % 83 6.13 % 93 10.42 % 74 4.20 % 84 6.45 % 94 10.99 % 75 4.37 % 85 6.76 % 95 11.63 % 76 4.55 % 86 7.09 % 96 12.35 % 77 4.72 % 87 7.46 % 97 13.16 % 78 4.93 % 88 7.87 % 98 14.08 % 79 5.13 % 89 8.33 % 99 14.93 %

Income Only Trusts (a “Medicaid Qualifying Trust”) These Trusts distribute income or hold property (including a primary residence) in Trust to avoid Medicaid from placing a lien on the assets The Creator and his/her spouse can ONLY receive income (NO principal) from the Trust The Creator chooses the residuary beneficiaries The Creator can be the recipient, spouse, the recipient’s Power of Attorney or an Administrative body The 5 Year Lookback DOES apply if the recipient needs nursing home care, so not be a good idea if Nursing Home care is imminent The Trust is Irrevocable / cannot be amended

What About the “Well” Spouse? The “Community Spouse” is entitled to some assets and income, but they are limited $3,140 of income per month $75,000 - $123,600 of resources During the Medicaid Application process the well spouse may exercise a “Spousal Refusal” to avoid inclusion of his/her assets and income Medicaid may accept this, but will have a claim against the well spouse when he/she dies, and can still ask for a portion of excess income

What are “good” investments for Medicaid purposes? Retirement plans that are Defined Contribution plans (IRAs, 401k, 403b) Primary residence owned by a “well spouse” Liquid investment assets with minimal capital gains

What are bad investment, and what can I do now to correct them? Non-qualified annuities (b/c they generate income) Permanent life insurance policy with large cash value Roth Conversions (from IRAs) Any time you turn a liquid asset into income Multiple homes

Differing types & Levels of care LTC usually covers Assisted Living Facility Medicaid does not cover assisted living costs LTC gives you higher-level care givers you can easily replace Medicaid-eligible workers tend to be lower quality You CAN sometimes pay a family caregiver from an LTC policy, but NOT from Medicaid

How can Medicaid work with LTC? Medicaid is best looked at as the end game of the caregiving process Use LTC for initial care needs and transfer assets immediately upon LTC being initiated That way the best care is given early in the process when recipient’s quality of life is still best

How to Use LTC & Medicaid Together When the need for care arises and you have a LTC policy: Inform LTC agent / Financial Planner Hire a Social Worker & Attorney Get the LTC policy to start paying benefits Transfer assets EXCEPT what is needed for 5 years; HOLD THESE FUNDS IN RESERVE! Apply for Medicaid when policy coverage nears its end after 5 years

Investing in Health Care Using Income vs. Assets Locked-in Income is good for healthy retirement, but is often not good for health care Example: Annuitizing a $200,000 annuity may create $3,000 income per month, but the asset is now GONE for health care and insignificant for personal care Assets can be easily-utilized for immediate needs, and can be transferred (and preserved for inter-generational wealth)

Planning Favors assets over income!!! Complete control over our assets We can trade or give our existing stuff to other people, change its nature Medicaid allows more exceptions & exemptions for Assets INCOME Not much control over it - Income is typically on-going (Social Security, Pension) Can only (sometimes) leave you income to one person: Your Spouse (and usually only after you die) Medicaid tends to punish high income earners than people with large assets

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Long Term Care and How To Fund It. Thank you! Daniel Timins, Esq., CFP® Financial Planning Association of Metro New York To search for a CFP® professional, please visit www.PlannerSearch.org or call FPA at 800-322-4237.