Many happily married seniors are facing a previously unthinkable proposition: terminate their marriage or risk losing a majority of their savings to medical expenses, leaving both of them with little savings to enjoy their twilight years, regardless of how well they planned in advance. How can this happen? With medical technology ever improving, allowing us to live longer, most individuals will spend at least a few years in a nursing or retirement facility during our lifetimes. With the baby boomer generation approaching retirement age, more and more of us will fall into this category. How will these long-term care expenses be paid? The choices are private savings, long-term health care insurance, Medicaid or a combination. This is where the dilemma occurs.
For example, consider a devoted husband and wife living financially comfortable in retirement. Husband has a series of strokes and reaches the point physically where wife can no longer care for him. He must move indefinitely into a retirement facility where staff is available to care for him on a full-time basis. How will his care be paid? The couple can pay for his care but at $6,000 per month or more the money can be depleted quickly. The couple may have long-term care insurance; but most people don’t, and unless you purchase it at a fairly young age, it may be cost-prohibitive for older individuals. The couple doesn’t want to deplete all of their savings leaving wife destitute. So what then? This is when Medicaid enters the picture.
Medicaid is the safety net available to pay for medical and long-term care expenses for individuals after they have exhausted their available funds. What about for husband and wife? This is where our dilemma becomes clearer. Medicaid looks at the assets of both a husband and wife if either of them needs to apply for Medicaid. This is so that the applicant spouse cannot transfer all assets to the community spouse and then plead poverty. The problem is that the community spouse’s assets are put in jeopardy. Medicaid’s answer is to allow the community spouse to keep the house, a car and half of all the liquid assets, but there is a cap of about $110,000 ($109,560 for 2010), adjusted yearly for inflation. Assets can be given away, but this must be done at least 5 years prior to Medicaid application. For example, our hypothetical couple has a house worth $150,000 and $850,000 in savings. Medicaid allows wife to keep the house as long as she is living there and $110,000 of the liquid assets. She also gets to keep her income and possibly keep some of husband’s income. Will this be enough for her to comfortably maintain her standard of living? What other options are there?
Long-term care insurance not only provides money to pay for long-term care but provided your state, like Ohio, participates in a long-term care partnership program, may allow wife to shelter an additional amount of the couple’s assets equal to the value of the long-term care policy. What if long-term care insurance is unavailable or unaffordable? Divorce is a viable option that needs to at least be considered. Consider our couple with the $150,000 house and $850,000 in investments. If they stay married, she can keep the house if she resides there; but if she sells it, she may have to use the proceeds for husband’s care. She can keep $110,000 of the $850,000 in investments. How would she fare if they terminate the marriage? Assuming the assets are divided equitably, she would receive $500,000 in assets, much more than if they had stayed married!
What is the solution? Obviously long-term care insurance is the best solution, but this is not always an option. Another is transferring assets out of husband and wife’s names at least 5 years before either of them have to apply for Medicaid. However, most people don’t want to give up ownership and control of their assets. A final option is divorce. However, unpleasant as it may seem, under certain situations, it may be in the best interest of both husband and wife to consider this option in order to ensure that the community spouse is taken care of and can maintain financial stability.
Here is a link to an interesting video of a segment from the TODAY SHOW televised on March 13, 2010, on this very topic. http://dld.bz/3WKV or watch the video below.
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Joseph E. Balmer
Joseph Balmer manages the Probate, Trust and Estate Administration department at Dayton, Ohio, law firm, Holzfaster, Cecil, McKnight & Mues, and has been certified by the Ohio State Bar Association as a specialist in Estate Planning, Trust and Probate Law since 2006.