27 Costly Misconceptions About Planning for Your Senior Years

By Philip Flanigan, QLS CEO, Estate Planning & Medi-Cal Planning Attorney

January 3, 2017

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Misconception #1: Most seniors move into nursing homes as a result of minor physical ailments that make it hard for them to get around.

Wrong! The largest percentage of admissions to nursing homes is because of serious health, behavior, and safety issues caused by Alzheimer’s disease and dementia.

 

Misconception #2: Nursing home costs in California average $3,000 to $4,000 per month per person.

Hardly. Current nursing home charges for one resident typically run $6,500 to $9,000 per month, or $84,000 per year, which does not include prescription drugs – and those costs continue to rise.

 

Misconception #3: Children can care for a parent with Alzheimer’s disease at home, without the need for nursing home care.

Not true! Many patients with Alzheimer’s disease end up in nursing homes because children are simply unable to provide the level of care their parent needs. In most cases, the children want to care for their parents. But, as a practical matter, they simply can’t. Moving a parent into a nursing home is an intensely personal issue and should not be labeled as a right or wrong decision. In many cases, it’s the only realistic option. The rare exception is when the family has enough money to pay for skilled nursing care at home.

 

Misconception #4: Standard legal forms are all you need for a good estate plan.

Not true. A competent estate plan begins with clearly defined goals, supported by well-drafted legal documents, and the repositioning of assets, as needed, to protect your estate from taxes, probate costs, and catastrophic nursing home costs.

 

Misconception #5: Your child will never move you into a nursing home.

Wrong. Most children consider all options before moving a parent into a nursing home. But, sadly, children usually find they have no other alternative. As a result, parents who never expected to live in a nursing home soon discover that a nursing home is the only place with the staff and equipment to provide the care they need.

 

Misconception #6: As payment for nursing home care, the government will take your family home.

Not true, if you plan ahead. Many people fear that the government will take their home in exchange for nursing home care, but you can avoid this with proper planning. You’ll be glad to know there are some ways you can protect your home so it won’t be taken.

 

Misconception #7: You will never end up in a nursing home.

That’s hard to predict. Your odds are roughly 50/50. Of Americans reaching age 65 in any year, 43% will spend some time in a nursing home. One in four seniors will require care for longer than one year. That means one in four seniors will face costs of $78,000 or more, which does not include the cost of prescription drugs. Even worse, one in ten will require nursing home care for more than five years, costing a staggering $390,000 or more.

 

Misconception #8: Medicare will pay for all of your long-term nursing home costs.

Not true. Medicare may pay for up to a maximum of 100 days of skilled care in a nursing facility, providing you meet certain requirements. One, you must have moved into the skilled nursing facility within 30 days after your discharge from a hospital. Two, your hospital stay must have lasted at least three nights. And three, you must require and receive an ongoing skilled level of care. Medicare will pay the entire cost of your care for days 1-20, but for days 21-100 Medicare will provide only partial coverage. Medigap insurance often makes up the difference for the partial Medicare coverage during days 21-100. If you receive 100 days of Medicare coverage and cannot return home, you have three primary ways to pay ongoing costs: long-term care insurance, Medi-Cal, or from your personal funds.

 

Misconception #9: Medi-Cal won’t pay your nursing home costs. It’s only for poor people.

Not true. In fact, a substantial number of all nursing home residents qualify for Medi-Cal to pay their tab.

 

Misconception #10: To qualify for Medi-Cal, you will have to give up your family home.

No, not to obtain initial eligibility. At the time you qualify for Medi-Cal you may keep your home as long as you intend to return there to live, no matter whether you really can or do. There are Medi-Cal laws that allow you to keep your home if you are married or meet other legal requirements. These laws are very fact specific. However, if the house is in your name or estate at your death, the State of California will have the right to recover whatever it has spent on your care. It is possible to avoid this estate recovery with proper planning.

 

Misconception #11: If your spouse enters a nursing home, all of your joint savings will have to be spent on his or her care.

No. With proper planning you can keep half of your combined “countable” assets up to approximately $120,000. In some circumstances, you may be able to protect nearly all of your life savings. In fact, it is often possible to protect much more than the $120,000 maximum. “Countable” assets are those assets such as cash, checking accounts, savings, CDs, stocks, and bonds that the government considers available to be spent on the cost of nursing home care.

 

Misconception #12: If you give money to your children, you will not be eligible for Medi-Cal bene-fits.

Not entirely true. Such a gift will not make you ineligible if you made the gift more than 30 months before you seek Medi-Cal benefits (60 months in the case of a transfer to or from a Trust).

 

Misconception #13: If you apply for Medi-Cal, the state eligibility workers and the nursing home staff will competently guide you through the process.

Rarely, and generally not in your favor. Also, they may not be able to advise you about when to appeal a denial. Applications for Medi-Cal re-quire extensive documentation and can be quite time consuming, often beyond the ability of the state eligibility workers and nursing home staff to stay involved. An attorney specializing in this area of the law is the best resource for going through this complex process.

 

Misconception #14: Legally, you can give away only $14,000 to each of your children each year.

Not true. You can give away any amount, but you have to report to the IRS gifts in excess of $14,000 per recipient per year ($28,000 if both husband and wife make a gift). However, there is no requirement that you pay any gift tax unless you have exhausted your lifetime exclusion amount, which is currently set at $5,430,000 for an individual.

 

Misconception #15: You can wait to do long-term planning until your spouse or you get sick.

Maybe, to some degree. However, you and your spouse will be much better off if you have taken important planning steps in advance, before a crisis occurs. What stops most people from being able to effectively plan when they are in the middle of a crisis is that the ill person is unable to make decisions and sign the necessary legal documents.

 

Misconception #16: You have to give away everything you own to get Medi-Cal.

Not true. You are permitted to own some property and still be eligible for Medi-Cal. The challenge comes in knowing what property is “countable” and what is “exempt” under the Medi-Cal rules. For a married couple, the family home is exempt as long as the healthy spouse occupies it. Regardless of whether you are married, certain types of prepaid burial contracts are non-countable. Other types of property are exempt, as well. Bottom line: you don’t need to be completely without assets to be eligible for Medi-Cal.

 

Misconception #17: You can keep all of your marital property and your inherited property when your spouse gets Medi-Cal.

Not true! When a married person applies for Medi-Cal, assets in either or both spouses’ name are reviewed by the Medi-Cal eligibility agency. You can keep the assets that are exempt. And you will be allowed to keep a portion of the “countable” assets, if your spouse enters a nursing home and qualifies for Medi-Cal.

 

Misconception #18: If you put your property into your spouse’s name, you will make yourself eligible for Medi-Cal.

No. Assets are counted, regardless of which spouse’s name they are in. Misconception #19: If you enter a nursing home as a “private pay” resident, you must use up your assets before you can get Medi-Cal. False. You are not required to use all your assets to privately pay for the nursing home care. However, some nursing homes want you to believe this is true. Nursing homes charge private pay residents much more money than Medi-Cal pays them. This is why they want you to spend all of your money before they start to accept Medi-Cal payments for your care. With proper planning you can often protect all of your savings for your family. Be Careful!

 

Misconception #20: You can only spend-down your assets on medical or nursing home bills.

Hardly. Nursing homes may tell you that you have to spend your savings on the “private pay” rate, before applying for Medi-Cal, but this is not true. In fact, it’s against the law for nursing homes to discriminate in the care that they provide to people who are receiving or applying for Medi-Cal benefits!

 

Misconception #21: The agent you appointed in your Durable Power of Attorney automatically has the power to take property out of your name, if you ever need Medi-Cal.

Not automatically. When planning for Medi-Cal eligibility, the best and most effective tool is a General Durable Power of Attorney that includes proper “gifting” powers. Your agent under the Durable Power of Attorney will be able to re-title your assets only if your Power of Attorney contains authority to make gifts.

 

Misconception #22: All General Durable Powers of Attorney are created equal.

Completely false! A General Durable Power of Attorney is a highly customized legal document -- and NOT a form! Most Durable Powers of Attorney don’t contain even the most basic gifting authority. Without a gifting power, your agent is usually limited to spending your money on your bills and selling your assets to generate cash to pay your bills. Some Durable Powers of Attorney contain a gifting provision, but often it is limited to $10,000 or $14,000 per year. This figure is too small for effective asset protection planning, and relates to a completely different type of federal estate and gift tax issue. Other Durable Powers of Attorney allow transfers only to certain people and do not take into account that you may want your agent, spouse, or children to receive your property.

 

Misconception #23: Since you are married, your spouse will be able to manage your property and make financial decisions without a general durable power of attorney.

Not true. If you become incapacitated and your spouse needs to sell or mortgage the family home – or gain access to financial ac-counts that are in your name only – your spouse will need a general durable power of attorney. Without one, your spouse will have to go to Court and get the judge’s permission to act on your behalf by way of a conservatorship proceeding.

 

Misconception #24: Even if your spouse qualifies for Medi-Cal, your income may have to be used to pay the nursing home bill.

Usually not. This becomes an issue only when the healthy spouse has in-come of over a certain amount per month. In most cases, the healthy spouse does not contribute one penny of his or her income to the cost of nursing home care for the Medi-Cal-eligible spouse.

 

Misconception #25: All of your spouse’s income must go toward the nursing home bill if he or she is on Medi-Cal in a nursing home.

Not true. The law allows you to keep a portion of your spouse’s income if your income is below certain limits. In addition to this minimum allowance, you may be entitled to a greater allowance, based upon your income and asset base. The nursing home spouse will always be entitled to deduct $35 from their monthly income to be used for their personal needs.

 

Misconception #26: You can hide your assets while you become eligible for Medi-Cal.

False! Intentional misrepresentation in a Medi-Cal application is a crime and can be costly. The IRS shares any information concerning your income or assets with the local Medi-Cal eligibility office. You -- or who-ever applied for Medi-Cal -- may have to repay Medi-Cal to avoid prosecution.

 

Misconception #27: Medi-Cal rules that applied to your neighbor when he went into a nursing home will also apply to you.

Maybe not. Medi-Cal rules change. Don’t assume the law that applied to your neighbor will also apply to you. In addition, there may have been facts about your neighbor’s situation that you just don’t know.

 

 

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