By Lauren Adams, CLTC

Consumers worried about needing long-term care and the risk that it may bankrupt them are often drawn to seminars that promise to protect hard earned savings by having the government pay for their care.  A closer look at what some seminars are promoting is called for.

No reasonable person disputes that they will do everything they can to live a long life.  That results in the high probability of needing long-term care, defined as requiring assistance with your everyday activities or needing supervision due to a cognitive impairment.  The cost of providing that care often leads to a severe strain on a family's finances because of the lack of other options.

Medicare, the primary health care program for retirees, pays only for skilled or rehabilitative care, not custodial care in any venue.  Veterans believe that the VA will pay for home care, adult day care or assisted living. Funding is limited and generally based on service-related disability.  In fact, the federal government has communicated this message to veterans by encouraging them to purchase long-term care insurance through the new Federal Long-Term Care Insurance program.

Thus, seminars promising to protect assets become attractive.  Whether or not you get the right advice depends upon the training and motivation of the sponsor.

Most programs are given by elder law attorneys who state they understand the complexities of long-term care financing.  Unfortunately that may not be the case. For example, if the only thing discussed is Medicaid, chances are you are not getting the entire picture.

Medicaid, a federal and state program for financially needy individuals, will pay for custodial care but primarily in nursing homes.  Funding for home care and assisted living is very limited and based on availability of funds.  If the sponsor suggests that a so-called "Medicaid plan" will protect assets you need to understand the consequences and be ready to ask tough questions.

Medicaid planning is simply taking your lifesavings and either giving it away or placing it in a trust.  While it may sound simple, there are serious consequences:

Beware of Serious Tax Consequences

Has the issue of transferring tax qualified investments such as an IRA, Keogh or tax deferred annuity been discussed?  Gifting those assets creates an immediate tax that could reach 40% or greater.  Is it being suggested that you transfer low cost-based assets such as stock or your home?  If you do, the recipient picks up that basis, creating a tax when the property is sold.  If those assets remain in your name at your death, there is little or no tax.

Have you been told to gift your home?  If later sold by anyone other than you, it also creates a capital gains tax.  That tax may be greatly reduced or even eliminated by using your homeowner exemption of $250,000 ($500,000 for a couple).

Do You Have Retirement Income?

Income is rarely discussed by Medicaid planners but yet is the key to retirement survival.  Retirees live on income, not principal. Even if there are no tax consequences to gifting assets, income such as pension, social security, IRA, or annuity payouts cannot be protected.  For example a retired military individual may also have a second source of income. None of it can be protected; it must be spent on your care.

Where Do You Want Your Care Delivered?

Listen carefully to what the moderator is telling you: "Medicaid will pay for your custodial care in a skilled nursing home."  That's correct.  But where do you want your care to be delivered?  Like most people it is at home and in the community, not in a nursing home. In short, Medicaid pays for the one thing you never wanted; care in a nursing home.  If you want to stay in your home, you have to ask those to whom you gifted your assets for your money back.

A Better Alternative:  Long-Term Care Insurance

There are, however, retirement seminars given by attorneys who don't focus exclusively on Medicaid.  Without exception, they recommend long-term care insurance precisely because of the consequences discussed above.

Long-term care insurance (LTCI) has two roles: it helps keep families together and allows your retirement portfolio to execute for the purpose for which it was intended, namely retirement. From a family perspective, think about who will be providing your care. Like it or not, children will play a key role. LTCI allows children to provide for needs longer and better by paying for the difficult work of bathing, dressing, feeding,  and toileting.

From a financial point of view, LTCI allows your retirement plan to stay in tact. That is particularly important given the recent steep decline in portfolio values.  The product, in effect, protects the balance of the investment account. LTCI also protects income.

When buying coverage, choosing a long-term care specialist is critical.  Consider their training, educational credentials and commitment to help solve your long-term care needs.  The key is whether they talk about a plan or a product first.  If they are interested in the plan you are dealing with a professional.  If their initial presentation centers around product and price, consider getting a second opinion.

Lauren Adams has earned the designation "Certified in Long-Term Care" or CLTC, after completing a rigorous multidisciplinary course focused on the profession of long-term