Assisted Living: 5 Options to Pay for It – It’s not always the easiest of conversations, but long term care can be an expensive necessity that comes toward the end of life. If you or a loved one is struggling to pay for assisted living, there are options that can help you overcome the financial hurdles. Keep reading for five alternatives to affording assisted living.
There are a few different options for veterans who need help paying for assisted living. If you have a service related pension you may be able to get assistance in the form of caregivers in your home or if your state has them, residing in a VA facility for disabled or elderly veterans. If you served in the military during a time of war (you don’t have to have actually fought in the war – just be enlisted during that time), you may be eligible for an Enhanced Pension or what is also referred to as Aid and Attendance. You may also qualify for this benefit if you are a widow or widower of a veteran. This valuable benefit for veterans can provide as much as an additional $1,176 per month for the surviving spouse of a veteran, $1,830 monthly for an unmarried veteran, $2,169 monthly for a married veteran and $2,903 per month for a married couple where both spouses are veterans. You must meet certain income and asset limits to qualify for Aid and Attendance benefits. Don’t give up if you are told you have too much in assets. More often than not, an experienced elder law attorney can help you plan your estate in such a way that you can qualify for this valuable assistance program.
You may qualify for a reverse mortgage on your home. Depending on the type of mortgage program selected, you may qualify for a fixed amount of income to be paid to you for the rest of your life or a guaranteed period of time, an equity line that you can access to pay bills whenever you need extra funds, or both. No payments are made on the mortgage while you or your spouse is alive. When the surviving spouse passes away, the reverse mortgage must be paid off. The payoff of the mortgage is usually accomplished through the sale of the house. If the loan amount (plus interest) is less than the value of the house at your death, the remaining equity will be paid out to your designated beneficiaries. If the amount of the loan plus accumulated interest is equal to or in excess of the value of the home at the time of your death, your beneficiaries will receive nothing from the house (but you would have received the care that the equity in your home paid for). If the loan is greater than the value of the house, your children will not owe anything to the reverse mortgage company. Unfortunately, there has to be a senior residing in the house to qualify for a reverse mortgage. So this strategy would not work for an unmarried senior or a situation where the spouse residing in the home passes away prior to the spouse residing in the assisted living facility. In that situation the residence would either need to be sold or a traditional mortgage would have to be used rather than the reverse mortgage.
Rental or Sale of Your Residence
Quite often the residence is the most valuable asset owned by a senior. If you are vacating your residence in order to have care provided in an assisted living facility, it is possible your home could be converted into a rental. The income from the rent would first go to pay the overhead expenses of maintaining the residence (mortgage payment, property taxes, homeowners insurance, homeowners association dues, etc…) with any remaining amount being available to help pay for the monthly costs charged by the assisted living facility. If the mortgage on the home has been paid off, the monthly expenses could be relatively minimal and leave a nice income for your use. Don’t forget to talk with your tax man to determine what the taxes, if any, will be on the net rental income earned every year.
If renting the residence out doesn’t sound like a good option, perhaps selling the home is a more attractive alternative for raising money to pay for assisted living. Perhaps a relative would be interested in purchasing the residence. The sale could be outright or you might consider financing part of the transaction with an installment sale. If you finance the sale, you may receive a lump sum up front from the down payment and then monthly payments each month on the mortgage you will be providing to the your relative who purchased the residence (or non-relatives if you are willing to finance the sale to a third party). If no relative would like to purchase the residence, it could be sold outright or using an installment sale to a third party. Because of special tax rules regarding the sale of the residence, it is not unusual for the sale to be tax free. On those occasions where you do have to pay a tax, it is taxed at the lower capital gain rates and the amount of the tax would not be based on the full sales price. Rather, the amount of gain reported is the difference between the sale price and your “basis” in the house (plus the residential exclusion amount of either $250,000 or $500,000). Selling the residence can often result in a very large tax favored cash infusion to assist with the payment of long term care expenses.
Surrendering Your Life Insurance Policy
If you purchased a life insurance policy at one point in your life, now might be the time to use it. If the life insurance policy is a whole life policy or other type of permanent insurance, you should be able to surrender the policy and receive the “cash value.” Another option would be to convert the life insurance policy to an annuity. In that case you would receive a monthly income for the surrender and conversion of the policy. The income amount would be based on the value of the policy and can be paid to you for either a guaranteed period of time, the rest of your life or the longer of the two.
An even better option might be to sell your life insurance policy to a senior settlement or viatical company. The company would pay you a lump sum for your life insurance policy. The amount of the payment would depend on your age, health, and the type of insurance you have. You get money today to help pay for the cost of care in an assisted living facility and the company who buys the policy receives the death benefit on the policy after you pass away.
If you are faced with the prospect of paying for long term care costs, either now or in the future, you should consult with an elder law attorney to explore these options and perhaps others.
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