By PJ Shanley
Financial Planning
PJ Shanley
The cost of care for our elders is rising at an alarming rate, especially here in the Northeast. Most people know they need to do something, but they don’t know what to do or where to begin. Maybe your neighbor did one thing, and your brother-in-law did something completely different. What should you do?
Let’s start with the facts. The estimated annual median cost of a private room in a Connecticut nursing home in 2025 is $192,568, far exceeding the national median. Connecticut is consistently one of the most expensive states for long-term care, a staggering figure by any standard. Assisted living facilities can be $7,500 per month and up depending on the level of care needed.
Who pays? In most cases, you do. Medicare very rarely covers nursing home and assisted living situations. If a patient is receiving “skilled services” in a nursing facility after a qualifying three-day hospital stay, Medicare will help pay for up to 100 days of care.
What will happen? Individuals (and their families) who require long term care must look to other sources of payment, i.e., their own resources, long term care insurance or Medicaid.
Medicaid is the joint state/federal program that pays for, among other things, convalescent care for eligible individuals. The institutionalized spouse’s assets cannot exceed $1,600, while the non-applicant spouse (called the “community spouse”) can keep a portion of the couple’s combined assets. The specific amount is determined on the date of institutionalization and ranges from a minimum of $50,000 up to a maximum of $157,920.
Several assets are typically not counted towards the asset limit. For long-term care, the home is exempt if the applicant, their spouse or a disabled or minor child lives there. There is a home equity limit of $1,097,000 for 2025 that applies in certain situations. Other excluded assets include one vehicle, personal belongings and household goods and burial funds and plots. Term life insurance with no cash value is also exempt, as are other policies if their total face value is below $1,500. Connecticut Partnership-approved long-term care policies allow individuals to protect additional assets.
Qualified plans and IRAs are not exempt in Connecticut, though they are in some states. The average stay in a nursing home is about three years: $16,000 a month for 12 months is $193,000. Over three years that comes to $576,000. Think about how financially catastrophic just an average stay could be and the adverse effects it could have on your retirement nest egg.
Now that everybody is depressed, let’s talk about what can be done. For people who have the chance to plan ahead, the simplest solution may be long term care insurance, which has several variations.
A partnership policy allows a Medicaid applicant to shelter assets equal to the amount that the policy has paid out for their care. Here’s how it works. If you have a Connecticut partnership policy that has a benefit covering $750,000, then the policy would pay the facility until the policy ran out. Then you would be responsible to pay until your assets are depleted down to $750,000, at which time, you would be eligible for Medicaid.
As the industry has evolved, the future of long-term care insurance will be a hybrid policy that functions as both a life insurance and long-term care insurance, so that if the owner never needs long-term care, their heirs receive a valuable death benefit. Some annuities come with a long-term care component that increases the amount of income if the annuitant needs long-term care.
People with a shorter time horizon may want to simply gift assets to their family, but keep in mind that there is a five-year lookback period, so that presents some risk. Caregiver contracts between family members allow the parent to transfer assets gradually to the children in the form of compensation, not gifts.
Or a parent can purchase a life estate in a child’s house, meaning that the parent has purchased the right to occupy a share of the child’s house for the rest of his or her life. As long as the parent lives with the child for at least a year before requiring care, this will not be considered a disqualifying transfer. This strategy might work well if a parent is no longer able to live alone and is thinking of selling his or her own home and moving in with a child. Further, parents can rent room from a child or contribute funds to build an in-law apartment in child’s house or make other improvements to the house more conducive to senior living.
Another strategy is the Medicaid income-only trust, where an individual places assets in an irrevocable trust that gives him or her all the trust income but no principal. There is a five-year lookback on the funding of the trust, but if the trust is properly drafted and administered, after the five years the principal of the trust is off the table for the purposes of Medicaid.
There are many options out there. The hardest part is usually getting started. The first thing you need to do is begin the process by sitting with your financial advisor and estate planning attorney to come up with the plan that will be best for you and for your family.
PJ Shanley is a financial advisor with Barnum Financial Group and is a former member of the Orange Board of Finance. He can be reached at 203-513-6282 or pshanley@barnumfg.com. Securities and investment advisory services are offered through qualified registered representatives of MML Investors Services, LLC.