Everyone should have a written plan in place in the event there is a need for assistance now or in later years. No one wants to think about losing their independence and having to rely on others for daily living assistance. The reality is it could mean acquiring home care, skilled nursing care, or moving to some form of retirement home or care facility.
With a written plan in place your family will be better prepared to deal with the financial impact of when you require care. This type of event is further complicated due to the emotional impact on a family in these situations.
There are several ways to provide money should care be required. Personal assets can be liquidated, or insurance can be utilized. Before qualifying for Medicaid, assets must be spent down and even when Medicaid benefits are received, the State is required to recoup money from the estate of the Medicaid beneficiary, often via a lien on the residence.
If one member of a couple is over age 62 there is another financial alternative that can offer additional benefits. A reverse mortgage may be taken on the home with the money left in place to grow tax deferred at an attractive interest rate. Should money ever be needed for care it can be accessed free of income tax. The money may also be accessed for other things that insurance plans do not cover, meal preparation, home cleaning, etc. If the money is never needed, the only cost to the homeowner was the original loan origination fees, usually about the cost of one year's premium for a long-term care insurance policy.
The advantage of this type of strategy is money is immediately available when needed. Most insurance policies require a waiting period, generally 90 days. Equally important there is no health or medical qualification required to begin the flow of money. This eliminates family members having to deal with making monetary decisions when emotions are running high.
Today’s reverse mortgages allow access up to 40% of a home’s value and that percentage increases based on age. From a planning standpoint the best scenario is in setting up a reverse mortgage when home prices are high, and time is available to earn interest.
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