When you are thinking about the trajectory of your financial situation as you enter your senior years, you can start to get a feel for the nature of your legacy. It is wise to see the complete picture so that you can take the right steps to provide for your loved ones in the optimal manner.
People typically take retirement planning seriously, in anticipation of the golden years that will be full of travel, leisure time, and bucket list erasures. Unfortunately, many of the same individuals do not fully comprehend the expenses that they can face during the twilight years that inevitably follow.
You would do well to visit the LongTermCare.gov website that has been established by the United States Department of Health and Human Services. There is a lot of very useful information about living assistance, and some of the statistics are eye-opening.
Most seniors will require help with their activities of daily living eventually, and 35 percent will ultimately reside in nursing homes. The average length of stay is one year.
If you pay into the program sufficiently during your working career, you will qualify for Medicare coverage when you reach the age of 65. This government health insurance for senior citizens will provide a solid underpinning, but there are out-of-pocket costs.
These expenses can be manageable for many, but there is an enormous hole in the coverage that is a very big deal. Even though the majority of senior citizens will need living assistance, Medicare does not pay for custodial care.
The median monthly cost for a private room in a nursing home in the El Segundo area in 2019 was $9125 according to Genworth Financial. If you do the math, this factors out to almost $110,000 a year. The potential costs are doubled for married couples, and that can take a huge chunk out of your legacy.
There is a solution to this dynamic in the form of the Medi-Cal program, because it does pay for long-term care. However, since it is a need-based program, you cannot qualify if you have significant assets in your name. The limit on countable assets in California is $2000, but there are some types of property that do not count.
Your home is not countable, and there is no equity limit in California at this time. Your wedding and engagement ring would be exempt, along with any heirloom jewelry that you may have in your possession. An applicant can keep one motor vehicle, and household items and personal effects are not counted.
You can have up to $1500 in whole life insurance, and the same amount can be set aside for final expenses. Unlimited term life insurance is allowed along with prepaid burial plots.
In many cases, a healthy spouse will be able to remain at home after their spouse enters a long-term care facility. Under these circumstances, the healthy spouse would be entitled to a Community Spouse Resource Allowance. This is equal to half of the countable assets that are shared, but there is a limit of $128,640 in California in 2020.
In order to divest yourself of assets to qualify for Medi-Cal, you have to act in advance, because there is a 30 month look back period. You have to complete all gift giving at least 30 months before you submit your application. A penalty is imposed, and your eligibility is delayed if you violate this rule.
Direct gift giving is one option when you are “spending down,” but you can alternately convey assets into an irrevocable income-only Medi-Cal trust. You would no longer have access to the principal if you fund this type of trust, but they would not count if and when you apply for Medi-Cal.
You could continue to receive income that is generated by the trust until and unless you apply for Medi-Cal coverage.
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