There is a gap in coverage for medical care. Medicare will pay for most of your medical expenses as you grow old, especially if you purchase a Medicare supplemental insurance policy that can handle copayments and even prescription drug purchases. Medi-Cal is available for long-term nursing home care, and can usually be obtained when needed with a bit of Medi-Cal planning.
The coverage gap is for people who need assistance and supervision with the activities of daily living, but who aren’t so poorly off as to require nursing home care. Regretfully, some nursing home patients fall into this category, because they can’t afford to pay for assisted living, board and care homes, or in-home caregivers that would provide them with more comfort and freedom.
While there are some programs that help pay for in-home care, such as In Home Supportive Services and the Veteran’s Administration Aid & Attendance program, most people who need caregiving short of being in a nursing home have to pay for it on their own dime.
There is an alternative. Long-term care insurance has been available for years. There are restrictions of course. They won’t let you buy a policy when you already need care, so you have to do it sooner rather than later. You also have to be particularly careful about the terms of the policy. You also want to make sure that the insurance will pay for care in your own home. After all, that’s the goal.
The good news is that there is an alternative to traditional long-term care insurance policies where you may receive no benefit at all unless you actually receive long-term care. There are now insurance companies selling life insurance with a long-term care rider. The financial advantage of such a policy is that if you don’t actually need to use the long-term care insurance, your family will still be able to collect on the life insurance upon your death.
If you have an existing life insurance policy, you can cash it in and buy a new policy with the long-term care rider in an Internal Revenue Code section 1035 tax free exchange. There is also now a means by which you can use retirement account money in an IRA to buy this sort of insurance.
We have seen a case in which a person sold his $250,000 insurance policy in exchange for a $250,000 policy with a long-term rider. When he took ill, the insurance paid out $10,000 a month for five months for care in his own home, and his family inherited the remaining $200,000 upon his death.
Long-term care insurance isn’t for everyone, and people have shied away from it due to its cost. However, the opportunity to invest in life insurance with a guaranteed payout and long term care coverage can make providing for caregivers much more affordable.
Len & Rosie
Dear Len & Rosie,
My youngest son Nickie has had a hard time getting his life together. I recently gave him $25,000 to make a down payment on a small house because his credit was bad. I told him it would be against his inheritance. I’m leaving my estate equally to all my children and I don’t want to favor one over the other.
As it happened, I had to buy the house myself since my son’s credit is so bad. Nickie is living there, although I use it as a vacation home. He is making the mortgage payments. I intend to deed it back to him in three years, but what if something happens to me in the meantime? I want to make sure Nickie gets the house, but I don’t want to pay a lawyer to revise my will. Is there any other way it can be done?
Len Tillem and Rosie McNichol are elder law attorneys. Contact them at 846 Broadway, Sonoma, CA 95476, by phone at (707) 996-4505, or on the Internet at www.lentillem.com. Len also answers legal questions each weekday, Noon-1 p.m. and Sundays, 4-7 p.m. on KGO Radio 810 AM.
Do not give Nickie the house now or even three years from now. The mortgage will remain your responsibility whether the house belongs to you or your son, and the lender could call the loan if you transfer the home entirely out of your name.
If you give him the house with a quitclaim deed and he fails to pay the mortgage, you will be stuck with the bill and the house will still belong to him. If the lender forecloses against the home if the loan falls into default, your credit will be ruined because your name is on the loan and the deed of trust recorded against the property.
A second reason not to give the house to your son is that he has shaky credit. If he has any outstanding creditors, they can put liens on the house as soon as the ink on your quitclaim deed is dry. If your son may go bankrupt, there is no point in giving him an expensive home that could be taken away from him by his creditors.
Also, if you own the home upon your death and your son inherits it from you, he will benefit from a “step-up” in cost basis that will allow him to sell the home without paying any capital gains tax. If you give him the house now, this tax break will be lost. It is better for both you and your son to keep the house in your name and leave it to him in your will or trust. When you explain the tax advantages to him, I am sure he will agree.
If he isn’t already going to inherit everything upon your death, you need to revise your estate plan to make sure he will inherit the house, but a new will, or an amendment to your revocable trust, will cost less in both money and potential aggravation than the alternatives.
As an alternative, instead of updating your estate plan you could add him to the title of the home as a joint tenant so that he can deduct the mortgage interest he pays on “your” loan from his income taxes. You wouldn’t have to update your estate plan. As a joint tenant, if you pass away first, he’ll inherit the entire property outside of probate.
Len & Rosie