The sad truth is, for most people, savings and Social Security checks simply won’t be enough to cover the cost of assisted living. Many people find themselves needing to combine several different sources, including the generosity of family members, the proceeds of the sale of the family home and, if it was purchased well in advance, a long-term care insurance policy.
Consumer Reports provides some helpful advice to help you afford assisted living in its recent article, “11 Ways to Afford the Assisted Living Care You Need.”
Life insurance. If you or your parent have been paying premiums on a whole or universal life policy for a decade or more and are comfortable leaving less to heirs, an option is to access the policy’s built-up cash value. If you borrow from the policy or withdraw your cost basis (the amount paid in premiums), there’s no tax owed. If you cash in the policy entirely, you’ll pay ordinary income tax on everything but the cost basis. You can withdraw up to your cost basis and borrow the rest.
Veterans Benefits. Veterans and veterans’ survivors eligible for a Veterans Affairs pension, could be eligible for an increase in monthly pension benefits (an enhanced or special monthly pension). There are specific requirements, as well as income and net worth limits, but the asset test is a somewhat subjective decision made by the person processing the application.
HELOC. Homeowners who want or need to keep a home in the family can apply for home equity loans or home equity lines of credit. Be aware of all the setup costs, fees for loan processing, origination, and underwriting, appraisals and document preparation.
Reverse Mortgage. Homeowners 62 and older may use this when only one spouse is entering assisted living. A reverse mortgage allows you to tap into your home equity for cash.
Assisted Living with Flexible Pricing. There are very expensive, all-inclusive pricing models that include all services—three meals a day, 24-hour on-call aides, and transportation in one price. There are also less costly “levels of care” or “tiered pricing” models.
Sidestep the Sizzle. Consider a residence housed in an older building or one with fewer beds. Remember that the shiny new facilities operated by big chains will offer more amenities—but at a cost.
Coverage Gaps. Did you know that you or your parent could be waiting six months for the payments from a long-term-care insurer to start? Therefore, you could be forced to cash in a CD early and your bank might waive the early withdrawal penalty for an urgent need, like assisted living care. However, if they don’t help you, the penalty is minimal.
Writing Off the Cost of Care. There are tax benefits to high medical expenses. Deductible medical expenses include long-term care insurance premiums, as well as the cost of the medical services provided in the facility. Once the total medical expenses are more than 10% of your AGI, the remainder can be deducted from federal income taxes.
An experienced elder law attorney at Cottrell & Jacobs can help guide you or a loved one, to plan for what will occur, if and when assisted living care is needed.
Reference: Consumer Reports (August 31, 2017) “11 Ways to Afford the Assisted Living Care You Need”