Preserving Your Independence


As we get older, it often seems that time accelerates. It feels as if the children were in diapers just yesterday. Now they’ve left home and have kids of their own. Where does the time go?

Aging is a normal part of life. The infant becomes a toddler. Later the teenager becomes an adult (thankfully). Unfortunately, as we age later in life we are no longer as able-bodied as when we were teenagers. Gradually, we all get more aches and pains. While this is a normal, expected part of the aging process, what would happen if something serious were to occur? Let’s take a look at Betty’s situation.

Betty is 66 and has worked hard all her life. Betty and her husband, George, retired a few years ago. George died after only a year in retirement. Betty and George had a wonderful life together and raised two children, Peggy and Mark. Not a day goes by that Betty does not miss George terribly. However, she stays busy and has an active life. She travels and she spends a lot of time with friends and family—especially her adorable grandchildren. She was visiting Peggy and the grandchildren in Durham when she had difficulty walking and talking. She was having a stroke. She was rushed to the hospital. After a week in the hospital, her condition stabilized and the doctors sent her to a nursing home for rehabilitation.

Not only does Betty have a lot of hard work ahead of her, much of her life savings will be wiped out by the nursing home bills. Betty thought she had it covered with Medicare. But Medicare only covers the first 100 days of a nursing home stay. And there is a big daily co-payment after the first twenty days. After 100 days, or even earlier if her physician decides that further rehabilitation is not necessary, she has to pay it all. Betty wants to be close to Peggy and the grandkids during her recuperation. Unfortunately, the average nursing home in this area costs well over $6,000 per month. The total stay will cost Betty over $210,000, even after Medicare pays its portion. This will wipe out most of Betty’s lifetime savings and cause her to become financially dependent on her children. Instead of being able to help with her grandchildren’s future, she’ll be a financial burden on her children.

There must be a better way! Well, there is. Betty could have planned ahead by placing her money into a Medicaid Income Only Trust. The income of the trust would have been available to Betty, but the assets themselves would not be considered available to pay the nursing home expenses and would not have to be used up. As a result, Betty would have qualified for Medicaid. While she needed the nursing home assistance, the income she received from the trust would go toward her “share of cost” for the nursing home, but the principal of the trust would remain intact and could go to Betty’s children or grandchildren at her death. Unfortunately, this strategy does not work if you wait until the last minute. Medicaid has a five-year look-back for gifting, and transferring assets into a Medicaid Income Only Trust is considered a gift under current regulations. Any gifts made within that five-year period are totaled and divided by the average monthly nursing home cost to determine the “penalty period.” Betty would be ineligible for Medicaid during the penalty period.

If Betty had planned ahead, she could have preserved her independence, avoided being a financial burden on her children, and helped with her grandchildren’s future. And she would have had the exact same care!

Unfortunately, Betty’s situation is all too common. According to the U.S. Department of Health and Human Services, about 70 percent of people over age 65 will require at least some type of long-term care services during their lifetime, and over 40 percent will need care in a nursing home for some period of time.

Avoid Betty’s fate. Eat healthy and exercise, but also plan to protect your independence and your family’s future. A qualified Estate Planning and Elder Law attorney can help you plan ahead to preserve your financial independence.

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