Rising cost of long-term care means planning is more important than ever

Life expectancy has increased to record levels. People over the age of 90 are the fastest-growing segment of the U.S. population. Men currently over 65 will live, on average, until age 84. Women in the same age group will average an 87-year lifespan.

But aging unfortunately comes with increased medical expenses. The risk of stroke, dementia and Alzheimer's can leave a person needing constant medical attention and help with daily living. That means nursing home care or other long-term care option. In New York, the average yearly cost of a nursing home is greater than $100,000 per year in all counties. In New York City, a nursing home resident can expect to pay approximately $137,000 per year, according to the New York Department of Health. The Centers for Disease Control and Prevention data show the average nursing home resident spends two and-a-half years in a long-term care facility. Spending six figures for several years can drain an estate rapidly.

In early May the U.S. Commerce Department announced that healthcare spending rose almost 10 percent in the first quarter of 2014. The cost of long-term care is not expected to reduce any time soon.

Medicaid will pay for the cost of a nursing home, but only once most of a person's resources are exhausted. That is why Medicaid planning is such an integral part of an estate plan. While many people wish to leave assets for their children, family members and charities, without proper planning many assets may be used for medical care, rather than for the benefit of beneficiaries.

It isn't just gifting assets to children that makes Medicaid planning essential. In some cases a spouse can suffer because the other must obtain long-term care. Losing a home or not having enough money for daily expenses is traumatic and can be avoided through proper planning.

Preplanning is necessary well in advance

Even for aging people in great health, planning for long-term care sooner is better than later. Often, by the time a person needs to enter a long-term care facility, it is too late to preserve many assets.

For example, a person cannot simply gift away assets before moving into a nursing home in order to qualify for Medicaid. This is because Medicaid issues a penalty for gifts made prior to needing long-term care. In New York, any assets given away for less than fair market value are gifts that will disqualify that person from Medicaid for a certain length of time.

The Medicaid penalty for gifting assets is calculated by dividing the amount transferred by the average cost of a nursing home per month. So, for example, if the average monthly cost of nursing home care in New York is $10,000, and a person gives away $100,000 five years prior to entering that facility, that person cannot receive Medicaid benefits for 10 months.

Medicaid presumes that gifts made five years prior to needing long-term care are made in anticipation of qualifying for benefits. This is a rebuttable presumption, but the gift must have been part of a pattern of gifting that began before needing long-term care.

Medicaid and long-term care planning can be complicated. State law governs Medicaid, and states are constantly revisiting the issue in order to avoid giving Medicaid benefits to people legislators feel should not qualify. People without long-term care plans should see an elder law attorney as soon as possible to discuss legal options regarding future care.