Custodial Care Without Long Term Care Insurance

Does this scenario sound like you or someone you know? It’s common for families to experience one or more of the circumstances in this scenario.

Michael and Laura are each age 75. Their portfolio is worth $2 million with $1.5 million in an individual retirement account (IRA). Their annual income from an investment portfolio is $80,000. Their annual income from Social Security is $40,000. They enjoy their retirement lifestyle (including horseback riding lessons) and are generous in their community giving. They have three adult children. In addition to maintaining their lifestyle, they are helping one of their grown children who financially has not made the best decisions. Michael and Laura are also helping pay for their grandchildren's education.

They had not done long term care planning or purchased long term care coverage when Michael is diagnosed with Alzheimer's. You may be asking what has been allocated to pay for his personal care? Well, everything. By not allocating anything from their portfolio to pay for long term care, Michael and Laura have now allocated everything. Where else can the money come from? Laura is now faced with how to pay for Michael's custodial care. She looks into Medicare but finds that it will not pay for custodial care.

She looks at the Veterans Administration but was told, even though Michael is a veteran, there are no VA benefits due to the high level of their assets and income.

Laura looks into Medicaid and, at this time, she learns that it will pay for custodial care but almost exclusively if Michael becomes a patient in a nursing home. Laura promises herself Medicaid will be the last option but wants to know what would happen if care provided in a nursing home became necessary. She finds out to even qualify for Medicaid benefits, she would have to give their assets away or spend them down to next to nothing. The problem is that their assets consist of low-cost, base investments in qualified funds. The gifting of which could create substantial taxes. In effect, she finds out the Medicaid is not really free.

To preserve and protect their income and assets, Laura chooses to provide the care her husband needs by herself. As you likely know, this scenario presents a stark reality of the unintended consequences that can end up devastating their family emotionally, relationally and financially. When Laura's own health starts to fail, one of their children has no choice but to step in as a caregiver to assist both of their parents with daily personal care.

What does this strain do to the health of the caregiver and their relationship with the other siblings who do not help (or help very little)? Put bluntly, these circumstances create an unnecessary amount of stress within families.

There are two ways to minimize the impact of this type of scenario in your own life. First, learn about long term care and how to pay for it before you need it. Then work with a trusted advisor to know your options of where and how you want to receive long term care. Secondly, leverage your good health when you are younger to secure financial resources to pay for the long term care expenses as the need arises.

In Michael and Laura's case, they did not do any long term care planning to allocate financial resources to cover the related expenses. And by not allocating something to pay for their long term care, they've allocated everything.

Click now to learn more about how to estimate the cost of long term care using the Genworth Cost of Care Tool.