Can I Get a Tax Break for Long-Term Care?

The skyrocketing costs of long-term care (LTC) can ruin your retirement savings. The U.S. Department of Health and Human Services found that 27% of Americans turning 65 this year will have at least $100,000 in long-term-care costs, and 18% will require care costing more than $250,000. However, the IRS allows some limited tax breaks on medical expenses and insurance premiums related to long-term care.

Kiplinger’s recent article entitled “Deduct Expenses for Long-Term Care on Your Tax Return” says that if you need LTC, you may be able to deduct a portion of the costs on your tax return. If you purchased a long-term-care insurance (LTCI) policy to cover the costs, you may also be able to deduct some of your premium payments. Since retirement planning includes long-term care, it’s important to know how these tax deductions can help to offset overall costs.

Long-Term-Care Costs

The IRS allows you to deduct unreimbursed costs for long-term care as a medical expense, if certain requirements are met. This includes eligible expenses for in-home, assisted living and nursing-home services. The long-term care must be medically necessary and may include preventive, therapeutic, treating, rehabilitative, personal care, or other services. The cost of meals and lodging at an assisted-living facility or nursing home is also included, if the primary reason for being there is to receive qualified medical care.

The care must also be for a chronically ill person and provided under a care plan prescribed by a doctor. The IRS says that a person is “chronically ill,” if he or she can’t perform at least two activities of daily living. These are things like eating, bathing, or dressing. They must be unable to do these without help for at least 90 days. This condition must be certified in writing within the last year. A person with a severe cognitive impairment, like dementia, is also considered chronically ill, if supervision is needed to protect his or her health and safety.

To get the deduction, you have to itemize deductions on your tax return. However, itemized deductions for medical expenses are only allowed to the extent they exceed 7.5% of your adjusted gross income.

An adult child can claim a medical expense deduction on his own tax return for the cost of a parent’s care, if he can claim the parent as a dependent.

Insurance Premiums

The IRS also allows a limited deduction for certain LTCI premiums. Similar to the deduction for long-term-care services, this has to be an itemized deduction for medical expenses. Again, only premiums exceeding the 7.5% of AGI threshold are deductible. (Note that self-employed individuals may be able to deduct premiums paid for LTCI as an adjustment to income without having to itemize.)

In addition, the LTCI policy is required to satisfy certain requirements for the premiums to be deductible. The policy can only cover long-term-care services, so the deduction only applies to traditional LTCI policies, not “hybrid” policies that combine life insurance with long-term-care benefits. This deduction also has an age-related cap. For 2021, the cap is $5,640 if you’re older than 70, $4,520 if you’re 61 to 70 and $1,690 if you’re 51 to 60. (For those 41 to 50, it’s $850, and for 40 or younger, it’s $450.)

These deductions can be valuable for people in their seventies and older.

Reference: Kiplinger (March 23, 2021) “Deduct Expenses for Long-Term Care on Your Tax Return”

Do I Make Too Much Money for Medicaid?

A 73-year-old single retiree is collecting Social Security and a small state pension. He recently was told that he probably collects too much money to be eligible for Medicaid assistance to help with any kind of long-term care, if it was required in the future. He owns a house with a mortgage.

What options does he have, except for buying a long-term care insurance policy, which may be extremely expensive at his age.

Nj.com’s recent article entitled “I think I make too much money for Medicaid. What can I do?” says that there are some steps a person can take. However, it may take time before these actions will help your situation.

Medicaid has a five-year lookback. Therefore, if the Medicaid applicant gave away all of his assets this year and went into a nursing home expecting Medicaid to pay, the program would “look back” over five years at what he owned. The program can claw back what it spends on the applicant.

But just because you are not eligible for Medicaid and its long-term care benefits today, that does not mean that you will not be eligible in the future.

That is because even if your income is above the limit, you still might be able to qualify for Medicaid, if you have significant medical expenses.

In order to qualify financially, you need to have very limited resources.

In many states, for long-term care, an applicant’s assets cannot be more than a certain amount, such as $2,000 if you are single. However, not all property counts towards the resource limit. A home may be exempt, if it is your primary residence and worth less than the limit.

One option is a reverse mortgage which would free up some of the equity in the home to use towards a long-term care insurance policy.

Long term care policies can still be issued for people in their 70s, but the premiums will be higher than if you had enrolled 10 or 20 years ago. However, it is still an option and would keep the retiree in his home.

There are also a number of federal and state-funded programs that make it easier for seniors to live in the community and in their homes as long as possible.

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Reference: nj.com (March 11, 2021) “I think I make too much money for Medicaid. What can I do?”

How Else Can Nursing Homes Be Impacted by COVID-19?

Lack of funding is a big issue for nursing homes.“You layer COVID on top of that and… it’s a crisis on top of a crisis,” David Grabowski, a professor of health care policy at Harvard Medical School, told Yahoo Finance. “And that you started with a lot of nursing homes that didn’t have adequate staffing models, weren’t exactly strong at infection control, lacked resources in many, many regards, and then this hits, it’s definitely the industry.”

Yahoo Finance’s recent article entitled “U.S. nursing homes face ‘a crisis on top of a crisis’ with coronavirus and funding woes” explains that the nursing home industry has been facing a financial shortfall since at least 2013, particularly for non-Medicare margins, according to the American Health Care Association (AHCA). Non-Medicare margins are the revenues and costs associated with Medicaid and private payers for all lines of business. They dropped 3% in 2018, an increase from the year prior.

“Over 60% of people in the country that live in nursing facilities are dependent upon Medicaid,” AHCA President and CEO Mark Parkinson told Yahoo Finance. “And unfortunately, in most states, the Medicaid rates have been set at less than the actual cost to take care of the residents. So, it makes it very difficult to provide the kind of care that providers want when they’re underfunded so dramatically.”

In addition, Parkinson commented, “most of the people don’t understand that Medicaid is really a middle-class benefit, because if people live long enough to outlive their resources, it’s the only way that they can afford to be taken care of in a facility.”

Medicaid is a federal benefits program that gives health coverage to seniors, pregnant women, children, people with disabilities and eligible low-income adults. However, the federal government permits states to level the payment amounts long as they meet federal requirements.

“The failure to adequately fund Medicaid is primarily a problem with the states,” Parkinson said. “Each state gets to make its own decision on what its reimbursement will be for Medicaid. Although the national average is around $200 a day, the rate varies dramatically by states, and some states are as low as less than $150 a day. In the low funding states, like Illinois and Texas, the politicians just haven’t decided it’s an important enough priority to adequately fund it.”

According to the New York Times, COVID-19 has infected more than 282,000 people at about 12,000 facilities as of June 26. It has killed more than 54,000. There are roughly 15,600 nursing homes in the U.S., with more than 1.3 million residents and over 1.6 million staff.

“It’s important to note that COVID hasn’t discriminated, so it’s not just those worst-quality nursing homes that have seen cases,” Grabowski said. “It’s been equally apparent across the high quality and low-quality facilities, high Medicaid and low Medicaid facilities. We’ve found that it’s really about where you’re located that has driven these cases.”

Adding to the financial situation is the fact that testing for coronavirus in the thousands of nursing homes across the country can be very expensive. The AHCA and National Center for Assisted Living (NCAL) found that testing every U.S. nursing home resident and staff member just once, would cost $440 million. As the pandemic continues, more supplies are also needed. A recent NCAL survey found that many assisted living communities are running low on PPE (N95 masks, surgical face masks, face shields, gowns, and gloves).

Parkinson says, it’s a “failure to recognize the importance of the elderly. It’s a conscious political decision to underfund elder care,” he said. “It’s not defensible on any level, but it’s occurring in the vast majority of states.”

He went on to say that with more funding, nursing homes can be better prepared for the next health crisis.

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Reference: Yahoo Finance (June 30, 2020) “U.S. nursing homes face ‘a crisis on top of a crisis’ with coronavirus and funding woes”

Tips for Seniors Who Are Moving to Assisted Living

When you are planning your move into assisted living, you can quickly get overwhelmed with the endless list of things you need to do. If you are moving out of a home where you have lived for many years, the thought of having to downsize and get rid of most of your possessions can produce anxiety. If thinking about all the work ahead of you makes you feel sad or tired, it can help to have a roadmap. Here are some organizational tips for seniors who are moving to assisted living.

You will be dealing with two situations – your current house and your new home. Each one needs a tailored game plan.

How to Minimize the Stress of Packing Up Your House

When you move from a large home to a smaller environment, the logistics dictate that everything will not fit into the new space. You will have to part with some of your items.

Rule #1 is you should be the one to decide what you keep and take with you to your new home. No one should dictate what you can have. These strategies can help:

  • Some of the bulk of your items will be a simple matter, because you will have no use for some things in assisted living. For example, since the facility will likely take care of the yard work, all the lawn and gardening equipment can go to a new home. You can save someone a lot of money, by giving them these items when they buy a house.
  • If you move to a warmer part of the country, you might not need your winter gear anymore. Donating those things can help keep someone in need from being cold and reduce how much you have to move.
  • Walk into one of your rooms and make a list of the three or four things you love the most in that room. If you only keep your favorite things, when you are in your new home, everything you see will bring you joy.

Changing how you think about the process, can make it less emotional for you. Instead of thinking about losing most of your belongings, imagine how liberating it will be when you are not tied down by so many things. Most people discover a lightness and freedom, when they get rid of the clutter and things that do not matter.

Settling into Your New Home

When you pack up at your previous house, visualize how the items you keep will fit into the new space. Make sure you hold on to the things that will make you feel comfortable and at home. Arrange your favorite things, so you can see familiar items from every angle throughout your space. With a little planning, you can recreate the feel of your old home environment. Keepsakes matter. While you do not want to be crowded by clutter or create tripping hazards, a cherished clock, photographs, books and artwork can help you feel as if you belong from the first day.

If you are planning to move to an assisted living facility, reach out to your qualified elder law attorney. They may be able to help you with government benefits and are familiar with the process of transitioning.

References:

A Place for Mom. “Moving Seniors: Settling in to Senior Care.” (accessed November 21, 2019) https://www.aplaceformom.com/planning-and-advice/articles/moving-seniors

Moving to a Care Community? Check the Fine Print
Group Of Senior Couples Enjoying Meal Together In an Assisted Living Facility

Moving to a Care Community? Check the Fine Print

Reading the fine print when purchasing a home in a retirement community or a care community is intimidating. The typeface is tiny, you’ve got boxes to pack and movers to schedule and, well, you know the rest. What most people do, is hope for the best and sign. However, that can lead to trouble, advises Delco Times in the article “Planning Ahead: Moving to a care community? Read the agreement.”

If you don’t want to read the fine print or can’t make head or tails of what you are reading, one option is to ask your estate planning attorney to do so. Without someone reading through and understanding the contract, you and your family may be in for some unpleasant surprises. Here are some things to consider.

What kind of a community are you moving into? If you are moving to a Continuing Care or Assisted Living Community, your documents will probably have provisions regarding health insurance, entry fees, deposits, a schedule of costs, if you need additional services, fees for moving to a higher level of care and provisions for refunds and estate planning.

When you enter an long-term care facility, nursing home, or Assisted Living facility, you may find yourself signing documents regarding everything from laundry policies, pharmacy choices, financial disclosures and statements of your rights as a resident. Not every document you sign will be critical, but you should understand everything you sign.

If moving into a nursing home that accepts Medicaid, you and your family need to know that nursing homes that accept Medicaid are not permitted to demand payment on admission from either an adult child or a power of attorney from their own funds. However, Pennsylvania does have support provisions regarding children, that are called “filial responsibility.” This should not be a problem, as long as you speak with an elder law attorney who can make sure you have completed the Medicaid application correctly and are in full compliance with all of the requirements.

If your adult children ask you to sign documents and “don’t worry” about what documents are, you may want to sit down with an experienced elder law attorney to review the documents. When someone is not trained to review these documents, they won’t know what red flags to look for.

If someone signs the document who is not the applicant/future resident, that person may become responsible for the costs, depending upon what role you have when you sign: are you a guarantor or indemnitor? That person typically agrees to pay after the applicant/resident’s funds are exhausted. The payments may have to come from their own funds. Sometimes the “responsible party” is simply the person who handles business matters on the applicant’s behalf. You’ll want to be sure that the person signing the papers understands what they are agreeing to.

Almost all agreements will say that the applicant, or the person receiving services, is responsible for payment from their own assets. However, if someone signing the documents is power of attorney, they need to be mindful of what they are signing up for.

If possible, the person who will receive services should be the one who signs any paperwork, but only after a thorough review from an experienced attorney.

Reference: Delco Times (Feb. 5, 20-19) “Planning Ahead: Moving to a care community? Read the agreement”

Who Will Pay for Your Nursing Home Care?

It’s hard for everyone in the family, when a beloved parent or grandparent must enter a nursing home, because they can no longer live on their own. Often the result of a physical or mental decline, the difficultly is compounded by worries about how to pay for the care, reports The Ledger in the article “The Law: Are you eligible for Medicaid nursing home coverage?”

Once health insurance coverage ends, the cost of care becomes enormous, with the monthly cost for a private-pay resident at nursing homes often exceeding $10,000 a month. What usually happens? Residents can’t afford the care and only have two options: qualify for Medicaid Nursing Home coverage, or sell every asset they can, impoverish the spouse, and ask adult children or other family members for help. Most people contact an elder law attorney and explore becoming eligible for Medicaid Nursing Home coverage.

Let’s use the state of Florida for an example of how to qualify for this coverage. A person must pass a three-part test that examines their assets, income and health, at the time the application is filed.

Income. As of Jan. 1, 2019, you could have a maximum of $2,313 per month in income (before deductions) to be eligible for Medicaid Nursing Home coverage. If your income was above that number, then legal planning is necessary to create a qualified income trust. Timing is extremely important, because if the trust is not set up correctly or in a timely fashion, you will not qualify for Medicaid.

There is a common mistake made about a spouse’s income being too high. It’s happily not true: a spouse’s income can be unlimited, and it does not impact a Medicaid applicant’s eligibility for benefits.

Assets. As of Jan. 1, 2019, you may have a maximum of $2,000 of countable assets and be eligible for Medicaid Nursing Home coverage. If the assets are above that threshold, there are a number of acceptable legal options to help the individual become eligible. There are two types of asset classes to consider when applying for Medicaid Nursing Home coverage: countable and non-countable.

Some non-countable assets are as follows: In Florida, homestead property up to $585,000 in value, one automobile, a prepaid burial contract and term life insurance without a cash value. Countable assets include bank accounts, investment accounts, life insurance with cash value, CDs and annuities.

As of Jan. 1, 2019, a spouse may have a maximum of $126,420 of countable assets, without having an impact on their spouses’ Medicaid eligibility.

An elder law attorney should be consulted to help the family understand the income and asset tests and create a strategy to help the individual qualify, if they anticipate needing Medicaid Nursing Home coverage. It’s best to do this well in advance, if possible.

ReferenceThe Ledger (Jan. 9, 2019) “The Law: Are you eligible for Medicaid nursing home coverage?”