Over the last couple of decades, the cost of receiving long-term care in a facility has gone up dramatically. A recent Genworth study shows that the average private room in a nursing facility can run you over $100,000 per year. Even at the standard 3% inflation rate, that number will grow to $180,000 in 20 years. Many baby boomers have not insured themselves against this risk and most Gen Xers think it is a problem they can worry about when they get older.
But what is being overlooked is a little-known legal doctrine called
Filial support laws. These are rules that could hold you responsible for the
long-term care bills of your parents or other family members. Over half the
states have these rules and many have been around for decades. While this has
not been much of an issue in the past, with an aging population and an
increasing need for care, many states are revisiting these old rules. So far,
Pennsylvania is the only state that is strictly enforcing their law. (See list
below for other states with some form of the law).
At this point you might be thinking, "doesn't Medicare or Medicaid cover
me for this." The answer is that Medicare only covers rehabilitative care, not
custodial long-term care. And Medicaid is only available when you completely
run out of money. To qualify for Medicaid most states have resource limits of
around $2000. That means you must spend all your money down to that limit
before the system starts paying. And do not think you will get to give all your
money to your kids to qualify. There is a 5-year look back rule that will make
you ineligible for Medicaid for a certain period if you transfer assets for
less than fair market value.
Because Medicaid pays a limited daily benefit, you will often find that
the quality of care given is lacking. Since the system was designed as a safety
net and more and more people are relying on the program, it is putting lots of
stress on state budgets. The solution is either for the state to raise taxes to
cover the increasing demand, or dust off the old Filial support laws.
So, what is Your Smart Money Move to avoid being on the hook? If you are a baby boomer, spend some time with a financial professional to plan out how you will pay for possible care. And if you are young, bring up the subject to your parents. If they cannot afford to buy long-term care insurance, there is nothing wrong with helping them pay the premiums. After all, they probably paid for your college when they should have been saving for their care.
States with Filial Laws: Alaska, Arkansas, California, Connecticut, Delaware, Georgia, Indiana, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Mississippi, Montana, Nevada, New Hampshire, New Jersey, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Virginia, West Virginia, and Puerto Rico.