man in hospital bed surrounded by wife and medical staff Monkeybusinessimages/Getty Images
FIVE-YEAR CARE INSURANCE: There’s a reason why estate planners suggest a five-year long-term care insurance policy: to cover potential gaps between assets and care costs.

How to plan for risk of long-term care costs

Farm & Family: If gifting assets, there is a 60-month look-back that affects medical assistance that can be used for long-term care.

In previous columns, we have discussed how Joe and Nancy could protect their farm property from the risk of long-term care costs.

They could use long-term care insurance to cover the gap between their income and assets available to pay for care and the projected cost of long-term care. We advised that they cover this gap for at least five years.

We also discussed, in the event that Joe or Nancy needed long-term care, that Medicare may cover these costs — but only for a limited amount of time.

The next steps for Joe and Nancy are to file a claim for the long-term care insurance, and to plan how their available assets and income will be used to use to pay the long-term care costs.

Often, retirement accounts are used to pay long-term care costs. If using these accounts, it is important to work with a tax adviser to keep the optimal balance between the income and medical expense deduction in order to reduce income tax liabilities.

By using the long-term care insurance, they would be able to cover the long-term care costs for five years.

Why it’s important to have 5 years of coverage
To further protect their land and machinery from long-term care costs, Joe and Nancy will likely look at sale and gift options. If they gift these assets to their son, Dan, there is a 60-month look-back on the gifts if they apply for medical assistance long-term care benefits. Talk with your estate planner to learn the impact on your retirement plan.

Medical assistance is a program that pays the long-term care costs for people over age 65 meeting certain income and asset qualifications. If Joe and Nancy apply for medical assistance within 60 months of making the gifts, they will be ineligible to receive medical assistance benefits for a period of time. The amount of time they are ineligible to receive benefits is calculated by dividing the gift amount by the statewide average payment for a skilled nursing facility (SAPSNF). In Minnesota, this SAPSNF rate is currently $7,288.

If Joe and Nancy apply for benefits within the 60-month look-back period after gifting the farmland valued at $800,000 and the machinery valued at $200,000, they would be ineligible for medical assistance long-term care benefits for approximately 138 months.

Since the ineligibility time exceeds the look-back period, it is best for them to not apply for benefits and to pay the costs of care until the look-back period is completed.

Balzarini is an attorney at law with Miller Legal Strategic Planning Centers P.A. Email your questions and comments to him at [email protected].


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