Long-term Care Insurance Could Protect your Estate Plans

September 7, 2011

A few months ago I participated in a presentation in conjunction with Edward Jones called Key Life Decisions: Are You Prepared? I spoke about estate planning documents, such as wills, financial powers of attorney and living wills. One of the topics covered by another presenter was long-term care insurance. After the presentation it became clear to me that individuals might not be aware how long-term care can affect their estate planning wishes, and more importantly, cause their estate planning to not be carried out because assets are not left over after the cost of long-term care is paid.

Long-term care insurance policies were designed to deal with the significant costs associated with personal-care services, ranging from home care to skilled nursing facility care. Without long-term care insurance to pay for these services, most individuals spend all of their assets until they qualify for Medicaid. After Medicaid begins to cover the cost of long-term care, it generates a lien against the person’s estate. Therefore, when someone passes away who was receiving long-term care paid for by Medicaid, the person’s estate will receive a claim from the Department of Public Welfare equal to what was spent for the care. This means if there are any assets remaining in the estate, they will go to administering the estate and paying back the state for the care paid for by Medicaid. This is called Medicaid Estate Recovery.

This is important to know because an individual who receives long-term care without long-term care insurance will most likely not have anything to leave to beneficiaries unless that person had a great deal of assets to pay for care.  If this is not the case, the gifts left to beneficiaries in a will won’t be there when it really matters.

Here is an example of how long-term care insurance could benefit a married couple. "Scenario A" shows what could happen without long-term care insurance and "Scenario B" highlights the benefits of preplanning for your long-term care needs.

Background: Michael and Jennifer meet with an attorney to prepare their estate planning documents. They have approximately $600,000 in assets they wish to leave to beneficiaries. In their will they decide to leave everything to the surviving spouse, and the remainder to their three children equally upon the death of the last surviving spouse.

At a later time, Michael’s health begins to deteriorate and Jennifer makes the difficult decision to place him in a skilled nursing facility. They still have approximately $600,000 in assets, most of which is jointly titled.

Scenario A: Michael and Jennifer have not purchased long-term care insurance and must determine how to pay for Michael’s care. Michael is not eligible for assistance through Medicaid until they have “spent down” all but $109,560 of their assets, including joint assets. Medicaid does allow for exclusion of certain assets such as a home and one vehicle. Over several years, the costs for Michael’s care totals $550,000. 

Total Joint Assets excluding home  $600,000
Total cost of Michael’s care  $550,000
Amount Michael & Jennifer must private pay or “spend down”  $490,440
Amount remaining for Jennifer and their children when Michael qualifies for Medicaid  $109,560
Amount of DPW lien against Michael’s estate (any probate assets not jointly titled upon his death)  $59,560


Scenario B: Michael and Jennifer purchased a Partnership Long-Term Care Policy with $500,000 of benefits. The insurance benefit allows the couple to exempt $500,000 of assets, the amount equal to the coverage amount.

Total Joint Assets excluding home  $600,000
Total cost of Michael’s care  $550,000
Amount Michael & Jennifer must private pay or “spend down”  $50,000
Amount remaining for Jennifer and their children when Michael qualifies for Medicaid  $500,000
Amount of DPW lien against Michael’s estate (for the portion paid by Medicaid after insurance was exhausted)  $50,000

The significant difference between Scenario A & B is the amount of assets left for Jennifer and her children. Rather than being required to “spend down” a significant portion of assets that they worked for years to acquire, long-term care insurance allows the surviving spouse to retain assets and have peace of mind for their future needs. Although both scenarios may result in a DPW lien, many of these Medicaid liens are never satisfied because estates lack the assets to pay them. This is the reason, Pennsylvania now has a partnership program with certain long-term care insurance providers to encourage individuals to purchase long-term care insurance. These "partnership policies" not only provide long-term care insurance benefits, but also exempt assets, equivalent to the amount of insurance coverage, from being spent down prior to Medicaid kicking in.

Like any insurance policy based on risk, in order for long-term care insurance to be affordable you need to apply prior to being in a position where you need coverage. If you are interested in learning more about long-term care insurance you can visit the Pennsylvania Insurance Department website. They have general long-term care insurance information and information on the Pennsylvania Partnership Program. You should also contact an insurance agent to discuss the long-term care insurance options available. Considering the rising costs of long-term care it becomes even more important to discuss estate planning at a younger age in order to sufficiently plan for the future.

In order to plan sufficiently, you should be prepared to consider all options and involve other professionals when making your estate planning decisions. You will want to speak with an attorney and possibly involve a financial planner. In addition, you should become educated on many different options. For example, you may not need a long-term care policy if you plan to move to a life care retirement facility in your retirement years. These retirement communities do not require additional payment for skilled nursing care.    

If you live in Lancaster County, Pennsylvania and are interested in exploring topics associated with key life decisions there is another Key Life Decisions presentation scheduled for the fall. If you are interested in attending contact me via our website’s submission form or contact me by calling (717) 293-9293.

Derek Dissinger is an attorney at Russell, Krafft & Gruber, LLP in Lancaster, Pennsylvania. He received his law degree from Duquesne University School of Law and practices in a variety of areas including Estate Planning.