As elder law attorneys, we pride ourselves on developing sound plans to give our clients the peace of mind that they will avoid impoverishment should they endure a long-term care crisis. For many years, the long-term care insurance industry has been providing a similar peace of mind, but unfortunately, it doesn’t always work out in the insured’s favor.
Below, we recount a real-life scenario where a cognitively impaired individual’s cost of care far exceeded what the family and the insurance company expected.
Joe and Barbara lived a modest life and were able to accumulate enough assets to live a comfortable retirement and help their disabled daughter, Fran. Their frugality allowed them the ability to purchase long-term care insurance, which gave them the peace of mind that their finances would remain intact should either of them need long-term care. It also provided them the ability to leave a legacy to Fran.
As Joe aged, he developed signs of dementia. Unfortunately, Joe’s dementia eventually presented itself with violent outbursts and rage. He became impossible to live with during these episodes and endured multiple admissions to psychiatric wards. Memory care facilities refused to accept him. During this time, Barbara consoled herself with the fact that at least he had long-term care insurance to pay for his care for three years.
After months of searching, the only facility willing to accept Joe was a skilled nursing facility designed for individuals needing the highest level of care. The fee for this service? $20,000 per month. Joe’s long-term care insurance and income covered only $6,000 of the fee, leaving Barbara with a $14,000 per month expense that would deplete her savings in 18 months. She contacted us and we explained that we could preserve her assets.
The Medicaid rules allow the applicant to transfer assets to a disabled child without incurring a transfer penalty. In other words, we explained that Joe could gift assets to his disabled child allowing him to immediately qualify for Medicaid. In this case, even though Joe’s long-term care insurance policy did not cover his needs, he was able to use his daughter’s disability to finally serve as a benefit.
The result: Joe receives the care he needs; Barbara avoids impoverishment; and Fran continues to maintain a decent quality of life, despite her disability.
Long-term care insurance is an important component of any senior’s plan, but we must always consider what might happen in a worst-case scenario. Here, Fran’s disability created the opportunity to save the day. In most instances, though, it is better to plan prospectively than to react to a crisis. Even families with long-term care insurance should visit with an elder law attorney to make certain their plan will cover all contingencies.