Published: June 22, 2007

It’s not a surprise that thousands of families across the nation are facing the challlenges of an aging population. The “sandwich” generation, those who are caring for their children as well as their parents, have been feeling the financial pinch of caring for loved ones. Paying the high cost of Elder Care can cost a family thousands of dollars a month. Too many families are unaware of how utilizing a loved one’s life insurance policy can not only pay for Assisted Living and Nursing Home care, but can maintain the standards of living for the remaining spouse.

Not too many financial specialist inform their clients who have purchased life insurance policies with a death benefit over $250,000 that they can utilize a somewhat unknown option on their life insurance to pay for the high cost of Elder Care. It is called a Life Settlement and it can fully take the financial burden off of families who struggle to keep their loved one in a quality facility.

A policy owner has the right to sell his or her life insurance policy to an institution for signifantly more than the cash value of the policy. For example, a life insurance policy with a $500,000 death benefit and a $75,000 cash value can be purchased for $250,000 and up. This money can be used now to pay for assisted living, nursing homes as well as in home services also. The procedure is relatively quick with minimal paperwork. It is senseless to struggle financially to pay for the needs of elderly loved ones when they can utilize their life insurance policy to pay for care. Many, many times life insurance policies lapse when a loved one goes into assisted living or a nursing home just out of financial neccessity as well as through medicaid planning.

Instead of letting a policy lapse or into surrendership, smart families are looking into life settlements as a funding source for the high expense of Elder Care.

Chuck Bongiovanni, M.S.W. has been helping seniors and their fanmilies for over 20 years in the assisted living industry. Chuck can help your family investigate your options for paying for Elder Care through a Life Settlement. You can go to his website at http://www.LifeTransitionsOnline.com or call him directly at 480-703-7005.

Medical deductions can include dental treatments, the cost of transportation needed to get to a medical appointment, health insurance premiums and qualified long-term care services. For a full list of allowable medical expenses, see Publication 502 (2009) at the IRS web site . Some key rules to remember are -

• You can only deduct medical expenses if they exceed 7.5% of your adjusted gross income.
• To qualify for a dependency deduction, you must pay for more than 50% of your qualifying relative’s support costs. The relative only qualifies as a dependent if he or she meets the gross income and the joint return test. Dependency Deduction   If your relative doesn’t qualify as a dependent because of these tests, you cannot claim a dependency deduction, but you can still claim his or her medical expenses.
• If a group of people are sharing costs for a qualifying relative, a multiple support declaration (IRS Form 2120) can be filed to grant one family member the exemption.
• Long-term care medical expenses including diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative, and maintenance and personal care services are deductible if the services are required by a chronically ill individual and a licensed health care practitioner prescribes the care. An individual is chronically ill if unable to perform at least two of six activities of daily living, which are eating, toileting, transferring, bathing, dressing, and continence. An individual who is cognitively impaired and requires substantial supervision is also considered chronically ill.
• Nursing services performed in a nursing home, an assisted-living facility, or similar care facilities are also deductible expenses if the person is principally receiving care for medical reasons. However, if a person is staying at a nursing home, an assisted-living facility, or similar care facility only for custodial reasons, only medical expenses are deductible; in this instance, room charges and meals are not deductible. Nursing services performed at home are deductible expenses. If the patient is chronically ill, certain maintenance and personal care services are also deductible.

Senior citizens and caregivers should be aware that premiums paid for qualified long-term care insurance contracts are also deductible medical expenses. According to the IRS, the contract must be guaranteed renewable; not provide a cash surrender value; not pay costs that are covered by Medicare; provide that refunds, other than refunds upon death, surrender, or cancellation of the contract, and dividends are used only to reduce future premiums or increase medical benefits.  For 2009, long-term care premiums are deductible up to the following dollar amounts: for individuals age 61 to 70 the limit is $3,180, for individuals 71 and older the limit is $3,980.

Many state governments also offer tax credits and deductions for caregivers on state income tax forms, so it pays to know your individual state’s rules.

By nature, tax rules are complex. It’s important to consult a tax attorney or accountant versed in eldercare tax issues about your specific situation before finalizing your taxes. The AARP also offers free assistance and tax tips for seniors through its Tax-Aide program; go to http://www.aarp.org/money/taxaide/.

1.    Privately paying for care in means paying for care out of your own income, investments, savings and assets.  

2.    Long-term care insurance will help pay for in-home care, assisted living, and nursing home care. This is the most appropriate and needed form of insurance protection available to us today. Long-term care insurance should be termed “lifestyle” insurance (it’s NOT just nursing home insurance!). If your vision of your later years includes sitting at home in your own recliner, with your own remote control, watching your own TV….well, you should be planning for that future with long-term care insurance.

3.    Reverse mortgages (Home Equity Conversion Mortgages) have become one of the most popular and accepted way of paying for many different expenses, including the cost of long-term care. Reverse mortgages are designed to keep seniors at home longer. A reverse mortgage can pay for in-home care, home repair, home modification, and any other need a senior may have.  Reverse Mortgage Companies 

4.    VA Aid and Attendance Pension Benefit: The Veterans Administration has established a pension program whereby your purchase of personal care and attendant home services may be paid for through your acquired pension. If you are a Veteran or the surviving spouse of a Veteran who has served at least 90 days or more on active duty with one day beginning or ending during a period of war, and you are in need of assistance at home or in an assisted living due to your disabilities, you may be eligible for VA’s non-service connected disability pension.    The benefit pays from $1056-$1949 per month tax free for life.  See a Veterans Benefits Consultant.

5.  Life Insurance:  Some insurance companies offer long term care additional riders for life insurance policies. Other options may enable you to use your life insurance policy to help pay for long term care. Accelerated death benefits and viatical settlements (selling your policy to a third party) provide payments lower than the full value of the policy, but can make sense for those who are terminally ill or in poor health. A life settlement essentially sells your life insurance policy for its present value—often a wise choice for those who no longer need or want a policy.

6.  Long Term Care Annuity:   An annuity is a series of regular payments over a specified and defined period of time. The funds for the annuity come from a single premium payment that you make when establishing the account. There are two types of annuities: deferred and immediate.  A deferred annuity includes two funds. The interest-bearing long term care fund is used to pay for long term care services and insurance. The cash fund grows at a guaranteed rate of 3 percent. The monthly amount depends upon the annuity value and generally provides coverage for up to 3 years.  An immediate annuity  also provides long term care coverage. This generally requires completing a medical questionnaire the insurance company uses to determine the price and length of payouts. Once you pay a single premium payment, you are guaranteed a monthly income for the rest of your life.

7.    Government assistance is available but in very limited supply. The Central Indiana Council on Aging administers the state and federal available in-home assistance.  They offer meal delivery, transportation, homemaker services and attendant care.   The CHOICE program allows you to hire your adult child to be your caregiver and they get paid after completing their certification program.  Not all in-home services are based on your income.  Most seniors make above the allowable limit to qualify for Medicaid while in their home and need a little assistance.  Currently the Medicaid system only provides nursing home care when someone needs 24 hour care.   If you need nursing home care you can apply for Medicaid but first consult a Medicaid Planning Expert such as Aging Avenues.

2. The Bank will take my house and my equity.
This is simply NOT TRUE ! The senior will keep the title to their property and may sell
their home at any time. When the loan is paid off, any equity left will go back to the senior
or to their estate.

3. The closing costs are too high.
Well, compared to what? If you were to get an FHA first mortgage on your home, the
closing costs would be very similar to the Reverse Mortgage.
If you compare to a line of credit (which is harder to qualify for) then the closing costs would
be less on the line of credit, but you would still need to make payments on the line and the
line doesn’t grow. Many seniors start out with a line of credit but get tired of making
payments and paying higher interest, so they end up with a Reverse Mortgage anyway.
The Reverse Mortgage line of credit is tax free and the growth on the unused portion also
grows tax free (around 3.5% these days) plus you NEVER have to make a payment.

4. I will have to pay back more than I borrowed.
Yes, this is true, however, this is true of any mortgage. On a “traditional ” first mortgage, if
you borrow $100,000 at 7% rate and pay on that money for 30 years, you actually pay back
OVER $250,000 !! The difference is that on a Reverse Mortgage, you won’t be making
payments on the loan during the time you have use of the money. In addition, you can live in
your home for as long as you wish and you can never owe more than the property is worth.

5. ” If I wait, I can borrower more later because I will be older.”
While it’s true that as you age, you are eligible for higher loan amounts, this is also based on
your equity/value of your home. Your home may not have appreciated enough in the next
year or two to offset the difference. In addition, rates have dropped which also allows you
to get more cash. Rates may be higher later. The most important thing to think of is that
none of us knows what tomorrow will bring and perhaps you will be able to use the money
sooner, rather than later?

The best decision you can make is one that considers all the facts.

Brenda Wheeler, Reverse Mortgage Specialist, M & I Bank Indianapolis