According to Paying for Senior Care, nearly all money spent on long term senior care comes from government programs (like Medicaid, Medicare, veteran’s benefits, and Social Security); insurance (like long term care and health insurance); personal property; and, private assistance (including nonprofits, foundations, and pharmaceutical companies). No coverage—including health and long term care insurance—will fully cover the complete needs of your elderly loved one, and the senior and his or her family will need to cover many aspects of care themselves.
One fact is true—at-home care for an elderly loved one is labor intensive and is provided mostly by trained individuals. Therefore, it can quickly become very expensive. Some senior care payment options have recently become available for elders and their families to consider.
Accelerated Death Benefit
This is a life insurance death benefit paid in cash in advance, tax-free. An accelerated death benefit is available to people needing long-term care for an extended period of time. Also known as a “living benefit,” accelerated death benefits may include all or part of the total life insurance death benefit.
Charitable Remainder Trust
This allows people to use their own assets for long term care while reducing their taxes. Generally used by well-off people who donate specific asset types to a public charity at fair market value, the trust enables people making donations to receive a tax deduction on the amount gifted. The donor receives payments from the trust that then can be used for long term care. When the donor dies, the balance of the funds in the trust go to the charity.
Deferred Long-term Care Annuity
This is available to people up to age 85, this annuity allows people to create two funds—one for long-term care expenses and the other to be used as they like. The long term care fund may be accessed immediately and if not used may be passed to heirs, but eligibility depends on the annuity holder’s health. There are many health criteria and the fund could be taxed.
This is a fairly recent financial option in which the owner of a life insurance policy sells an unneeded policy to a state-licensed third party (or investor)l for more than its cash value and less than its face value. Until recently, if a policy owner opted out of a policy by surrendering the policy or allowing it to lapse, the additional value was relinquished back to the issuing life insurance company. In some cases, an insured’s health may have declined since the policy was issued and the policy may be worth considerably more than the surrender value. A life settlement is an alternative to a surrender or policy lapse, or when the owner of a life insurance policy no longer needs or wants the policy, the policy is under performing or can no longer afford to pay the premiums.
This is a loan based on home equity that enables older homeowners to convert part of their home equity into tax-free income without having to sell the home, give up the title, or incur a new monthly mortgage payment. According to the Federal Trade Commission, with a regular mortgage, policyholders make monthly payments to the lender. In a reverse mortgage, policyholders receive money from the lender and generally don’t have to pay it back for as long as they live in their home. Instead, the loan is repaid when they die, sell their home, or when their home is no longer their principal residence. The proceeds of a reverse mortgage generally are tax free, and many reverse mortgages have no income restrictions.
This allows people to sell their life insurance to a third party and use the money to pay for their care. In viatical settlements, cash payments may be up to 85 percent of the policy’s face value. Such a settlement is only possible if the policyholder is terminally ill (a life expectancy of two years or less). Money received from a viatical settlement may be tax-free. Viatical settlements may potentially affect Medicaid eligibility.
While the majority of people over age 65 receive their largest source of retirement income from Social Security (ssa.gov), some may also access Supplemental Security Income (SSI),which provides monthly cash payments to help pay for food, shelter, and clothing. Like Social Security, SSI is derived from payments workers put in during their working years and is available to people with limited incomes age 65 or older, or are blind or disabled. Local Social Security Administration offices can help determine eligibility. Outside of Social Security, employer-sponsored retirement pensions are the next largest income source for people age 65 or older. (The Pension Rights Center at pensionrights.org provides pension counseling.)
For more information, contact us at (518) 348-0400.