PROPOSAL FOR MY MOM FROM PLANNER - REASONABLE?

"Dave Dodson" wrote

I do not know if it is true for all states, but in the several I have looked at recently for a relative, there are Medicaid laws to protect many or all of the assets that are jointly owned by married couples. The law tends to recognize it is not fair to leave a spouse destitute.

My opinion remains that long term care insurance and so on should be considered for the reasons previously noted.

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"many or all" is kind of an overstatement. In most states, the following things are exempt: primary home, one automobile, household goods (ie. furnishings, etc), prepaid burial arrangements. Everything else owned by either spouse is counted. Then at most half of those non-exempt assets are allowed to be preserved for the non-institutionalized ("community") spouse.

Some strategies for protecting that spouse include funding irrevocable trusts (has to be done long before they apply for medicaid, though) and paying off the house.

Even then, there may be "estate recovery" - anything still in the estate of the last of the two spouses to die may be sought out by the state to pay back some of the costs that Medicaid covered. So if you pay off your house, the community spouse lives in it while the institutionalized spouse gets Medicaid - when the second of them dies, before the estate gets paid out to heirs, Medicaid may seek to get paid back from the money which was protected by having had it as equity in the house.

The purpose, of course, is to protect the spouse - but NOT to preserve wealth for other heirs.

For a single, wealthy person, it's not the no-brainer that it may be for married, middle class folks.

And it may be expensive - a 72 year old will pay thousands of dollars a year for a LTC policy. It's certainly worth getting a free quote, but expect it to be expensive and it's not clear that it's necessary or worthwhile for this particular case.

One other bright point about LTC policies - in 2005, the Deficit Reduction Act added provisions called "Partnership Legislation" which allows all states to have provisions (not all states have actually enacted any, though) which state that if someone buys a qualifying LTC policy - and uses up all the benefits of that policy first - a much greater amount of their other assets will be protected - they'll qualify for Medicaid without having to spend down all those other assets first. The idea is that if this provides middle income people a strong incentive to buy LTC policies, fewer will end up on Medicaid in the first place. Here's a small write up about this from the AARP:

Nobody really knows if this is ultimately going to save us money on Medicaid - one would hope so - but it's certainly something to keep in mind at the moment and may be another good way to protect assets for heirs or spouses in the meantime. The terms of the LTC policies which qualify may make such qualifying policies more expensive, though, than policies which don't fit with this partnership program. Something to carefuly consider when shopping for an LTC policy. If the insurance folks who price and try to sell you and LTC policy are not familiar with these details, find folks who are.

Seconded.

There's an unspoken rule of thumb among LTC salesmen that only the upper-middle class buy LTC. The rich can "self-insure", and the poor will rely on the state. It's the "not-quite millionaire next door" that will see everything he has worked for vanish.

In reality, some rich people also buy LTC but for non-fiscal reasons. Namely, they have disposable income, they shun state-sponsored aid, and the desire the additional security provided by LTC even if it comes at a high cost.

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