What Farmers Must Know About Nursing Homes (Ep. 346)

"$12,000 for lifetime coverage for Scott and I both. We each get lifetime coverage for $12,000 a year. But here's what they're giving you. You're going to pay $12,000, so we'll say $6,000 each, right, to make the math easy. And if one or both of you need care, it's going to pay out $97,000 a year tax-free. You pay $12,000 each. $97,000 each. $180,000 each. So we're talking about the leveraging. I'm taking 12,000 pennies — I'm just making that up — pennies to turn it into big tax-free dollars."

I think farmers in general understand they need long-term care. They don't have it, which is remarkable to me. Because my parents had it. My grandparents had it. My one set of grandparents had it. My other set of grandparents did not.

But the people that just have a house in town — we had an 8-to-5 job, we just have this house in town — I think they're the ones that think we don't need long-term care. And that's a hot topic for me. Because I'm like, you do understand who has to pay for your butt to be cared for. It's us, with our tax dollars. Medicaid is taking our tax dollars to pay for you to be cared for. You had your entire life to prepare, and you chose not to prepare.

So do you see, with the majority of your clients, that they are looking to protect a business or an asset or land or something? But the people that just have a house, I'm like, eh, it doesn't matter, it's just a house.

Yes and no. So, gosh, there's a lot there. So let's first talk about the government, because a lot of people have some misconceptions there. And then I'll go into why they do Medicaid planning and all that.

So people misunderstand Medicare and Medicaid.

Did I say Medicare?

No, you said Medicaid.

Oh, okay. But I want to clear this up. Because I do — I switched it. I want to clear it up because a lot of people think, oh, Medicare pays for that. And Medicare does not pay for this. But I'll explain why it's confusing.

So Medicare, just in simple terms, okay — because it's a complicated program. Medicare is your health insurance. I go to the doctor. I'm in the hospital. My prescriptions. This is Medicare and med supps and things like that.

The reason why people think Medicare pays for nursing home is because it does. However, it's only following a hospital stay, for a very short period of time, for rehabilitation. And it's called skilled care.

So, for instance, if I'm on Medicare and I have a hip replacement, well, I can't come home and take care of myself. So they move me into a Medicare wing. It's very different — a Medicare wing of the nursing home, for rehabilitation. And so they'll cover the first 20 days and then it's prorated from 20 to 100. So that's all they'll cover.

And so oftentimes — like my grandmother, she had a stroke. She went into Medicare rehabilitation. They realized she's not rehabilitating. And after 100 days, where that copay is there, then she went into a Medicaid, completely different wing, different bed. The Medicare bed was wide and nice. She goes on to the Medicaid side and it's very different. It's a small bed.

And you get a roommate.

And you get a roommate. So imagine sharing your bedroom with a complete stranger.

So Medicaid is there for a reason. And again, I'm thankful for it. Medicare is mostly funded by the states, partially funded by the federal government. So that's the problem, because states can't print money. So when you have the state — every single state, the bulk of their budget is Medicaid.

So Medicaid is a welfare program. It's for people that can't afford to take care of themselves. So you've got poor families when it comes to children, things like that, but then also aging. And so it has changed over the years, the qualification for Medicaid.

Now, I'm going to speak generally, because it's different in every state and what they consider countable assets and all of that. So what you have to do if you're married, you have to bring your asset level down to a certain threshold. Now, what they don't want to do —

Poverty.

Well, and they don't want to impoverish what they call the community spouse. So the person that's still healthy. So they might bring you down to $100,000.

Your terminology and my terminology of impoverish are not the same.

Agreed. But it gets worse if you're single. It's really low. So they'll allow you to have your house. They'll allow you to have your car. So there are certain things that you can spend down.

What if I have a million dollar house? Do I still get to keep my million dollar house?

They will allow certain amounts. So it depends on states, right?

So if Scott goes into the nursing home and I want Medicaid to kick in, I can't stay in a million dollar house.

Depending on where you live. Depending on what's going on. And also, if I sold everything else off, but I just have a house — half a million dollar, million dollar, whatever. And it also depends on the year in which you go, because they'll increase those limits every year. And it also depends on what is your house valued at. So there's a lot there.

So they will allow you to — like if I have, let's say, IRA assets. IRA assets are not allowed to be — you can't transfer them out of your name. You can't have a trust on that. You can't transfer that ownership. So that's going to be countable. Now there are some states where it's not. Georgia, for instance. They don't include that in there, which I found — I need to do more research on that. But when I heard that and when I read that, I was like, wow.

So anyway, you can spend it down and there's allowable things that you can spend it on. Meaning I can upgrade my house. So for instance, when my grandpa qualified, my grandma put in new carpet, because he was shuffling his feet. He had Parkinson's. So she put in that flat carpet. She bought new furniture. There were different things that you're allowed to do that's not going to be considered a transfer.

Because if you transfer money — and here's what they'll do. I just heard a story the other day. When you try to qualify for Medicaid, they'll say, give me bank statements. Medicaid says this. Bank statements for the last five years. Most people don't keep that.

And it's a five-year look back, not a seven. People get that mixed up. I just want to throw that in there. It has never been a seven-year look back. From my understanding, it has always been a five.

But it is five. It's not always been five.

Okay. So it's five now.

But it is five right now.

It's five right now. But there are grumblings of a seven- to ten-year look back. And the reason is because people are —

Well, there's all these boomers.

All the boomers are coming. The boomers are coming.

So I have a client that her husband went to the nursing home because he had early onset dementia. And she had two choices. She could either divorce him and save their assets, or she could stay married. Well, because he was 10 years older than her, she's like, well, he's not going to get his pension — I can get his pension.

So they left her with a trailer home, a car. And I think she said she had $130 of cash. Everything else had to be minimal assets.

I don't think that they're going to make it go down that far. But minimal assets.

Whatever. That was the cash that she was left with. But she had to take a full loan on her life insurance policy. Not his policies. Not just his policies, because he was the one going in. A full loan on hers. Because it's a countable asset, because of marital assets.

And here's the thing. A lot of people don't understand — and you've probably run into this — Medicaid says you need to cancel those life insurance policies. They told her she needed to cancel them.

If they have cash.

She's like, what am I going to bury him with?

Well, they'll allow you — that's a countable expense. They will allow you to prepay for all of that.

To prepay for. But still, she had death benefit.

Yes.

So she said, can I take a full loan? Because she was educated on her whole life policy. She understood the difference between a loan and terminating a policy.

Yes.

So I think it's important for people to know that if you have life insurance — whole life, I don't care if it's even universal, variable, whatever. If you have a permanent product that has cash value, you do not have to cancel or terminate that policy. You can take a full loan.

Yes. And then she never had to take a loan any year after. She only had to do it the one time to qualify.

Well, and if they don't know that, they cancel the policy, and then all of that taxation comes due to them.

Yes.

Because now that loan is taxable to them.

So here — I'm not a Medicaid planner. So the loan is not going to be taxable. But if they cancel the policy —

That's what I'm saying. If they cancel the policy.

Oh, yeah. You said the loan will be taxable to them. Well, if they take a loan, that's not going to be taxed. But if they cancel, the cash value disbursement will be taxed.

Correct. Thank you for clarifying. That's what I meant to say. That once they cancel, now you owe taxes on that.

So here's what I will say. Medicaid planning is a crisis situation, where somebody just didn't know and nobody told them.

Unfortunately, I was talking with an elder law attorney and what he said just struck me. So he does elder law planning. He does the transfer into trust to protect that, so they can impoverish themselves to qualify for Medicaid. He said, my average client had anywhere between $500,000 and $2 million, and I get them qualified for Medicaid.

And I'm like, what? Those people could have paid for it themselves. That's not fair. That's not fair to the rest of us, right?

But he said, they became my clients because their advisor didn't do their job. Meaning, their advisor, all these years, got to enjoy the fruits of investments and all that kind of stuff, but didn't do the long-term care planning part of it. Didn't wrap a bow around the entire portfolio.

Because I don't know about you, and this may sound harsh — because again, a crisis situation is one thing, but actually planning for it is different. Meaning, you don't work your tail off like you do right now so that you can eventually be in the welfare line. That is not a desire of yours. And when you do that, your options get very limited. Because when you're reliant on government, you're talking about nursing homes that are going to cater to Medicaid, not Shangri-La. You know, I'm bougie. I would like to choose, if I have the choice.

That's what we talked about. I mentioned that earlier, right? A roommate.

So this is something new that I've just been talking a lot about, long-term care lately, because we're trying to save the farm. And in order to save the farm, they're going to require a sale of that land in order to qualify for Medicaid. So you're pretty land rich. You have assets. You want to give that to the next generation upon your death. But you're not going to go from living to dying, like living to dead. If it was that simple, we wouldn't have nursing homes. And so what happens if we have to make a stop between the coffin and the house? Then we need to have something in place to protect that.

So I've been talking a lot about it. And it's amazing to me, Michelle, how many people do not know that they get a roommate with Medicaid. You do not get a private room.

No.

And so people are arguing with me. Well, grandma had a private room and then she was on Medicaid. And I thought, well, maybe I don't know. So I have these new clients that are a nursing home. And we did a policy on the nursing home, because they want to implement infinite banking.

Great strategy for a nursing home.

Sure. And I said, do the Medicaid patients have roommates? And they're like, yeah. You have a sheet. She said a sheet.

I didn't want a roommate when I was in college and out of high school. I sure the heck don't want a roommate when I'm 85, 90, 95. My husband is my roommate and I struggle with him sometimes. I'm kidding. I'm kidding. He's wonderful. He's the easy one.

This is true for some marriages, though.

He's the easy one.

So my grandpa — I keep on talking about him. He had to share a room with a complete stranger. Now, remember, in the early days, he knew where he was. And my grandpa was the quiet one. My grandma was the loud one. My grandpa was the quiet one. And all he ever wanted to do was paint and read his Bible. That was it.

His roommate was almost deaf. So he blared his TV 24-7. Every time we'd come to visit, we're like, let's go out here — we'll wheel grandpa out into the lounge area, because we couldn't even visit with him in his room. And it was torture. This is a guy that fought in World War II. This is a guy that was a truck driver. He raised kids. And that's how he ended, was being tortured by 24-7 blaring. This guy would blare it.

And you would think that they would try to match quiet people with quiet people.

No.

But their intent is not to make your life comfortable.

No. It's just to make sure they change your pants.

That's right. And give you a shower.

Because they can barely find people to do that.

Well, and here's the unfortunate spot there. And not all facilities are this way. This was the experience we had. So remember, my grandpa kept on getting pneumonia. He'd go into the hospital. Well, he got MRSA. And MRSA's nasty. It's this viral thing that he wasn't able to fight off. So they would give really strong antibiotics. And the antibiotics worked through him.

Well, remember, my grandpa couldn't get out of bed by himself. And so he would lay in a mess. And my dad would come in, and my dad was the one cleaning him up. And you hear that a lot.

Well, because they're doing their rotation.

I don't think the caregiver — they had so many patients. They were doing the best that they could.

And it's just getting harder to find people.

Even here, you are now finding the caregivers in those facilities don't speak English. So now you have 80- and 90-year-old people working with people that don't speak English.

Now we're scaring everybody. How are you supposed to communicate?

I mean, I hear it just from friends that have parents in. Like when my grandma went in, she was a very quiet individual. My grandpa likes to visit with people. And she never said anything. She never complained about anything. And then all of a sudden, she is not happy with this roommate.

So all the kids have to decide, are we going to all pitch in to give her a private room? And some of them did. And some of them are like, no. My gosh, they gave the farm to the next generation. They were not happy about how all of the transition stuff happened. They said they should have planned for themselves. So some of the kids are saying, you had your whole life to plan. I'm not paying extra money every month so mom can have a private room.

But sadly, they probably didn't even know.

But they probably didn't even know. Nobody told them. They didn't think about it. They didn't know that there were options.

Some people just don't ask.

Some people don't. You're right. I mean, I love my grandparents to death. But I had one set of grandparents that were very financially savvy. And then I have another set of grandparents that were not so financially savvy. And it's kind of what people are interested in. Not everybody's going to listen to this podcast and go, oh my gosh, I need to go buy long-term care.

Well, and if they knew how easy it is.

It is so easy.

So let's talk about how easy it is.

Okay. So it's really quite easy. You just have a conversation.

That's the expense. My long-term care policy I bought at 45. And it's $12,000 a year.

Well, and you did it a little bit different.

I did. But you wanted it paid for in 20 years.

Yes. Because it was cheaper. I did a 20-pay policy. Because it was almost double. My premium would have been double if I would have paid for it until 100. It would have been cheaper monthly, but it would have doubled the premium.

And so, again, if I ever look at long-term care for a client, I only ever look at a 20-pay. Because it is so much more expensive long-term if you're going to pay it that way.

But $12,000 for lifetime coverage for Scott and I both. We each get lifetime coverage for $12,000 a year.

Here's what they're giving you. So you're going to pay $12,000. So we'll say $6,000 each, right, to make the math easy. And if one or both of you need care, it's going to pay out $97,000 a year tax-free. And that grows. It's got a compounding inflation on there. So every year it gets more and more.

So it's going to pay out $97,000 a year. You pay $12,000.

Each.

$97,000 each. $180,000 each.

So we're talking about the leveraging. I'm taking $12,000 — pennies, I'm just making that up — to turn it into big tax-free dollars.

That is the power of leveraging. And your $12,000 will never increase.

But $12,000 a year is what? $1,000 a month. I need my coffee. It's $1,000 a month. That is not affordable for everybody.

No.

But I also bought coverage of $8,000 a month. I bought more coverage than I would probably need at the moment, because I did not want to have to use any of my money. But you have strategies where you can ladder policies, so that today we have a little bit and we can pay as we afford to go.

But I guess when I say let's talk about how easy it is — I mean, if I am in my 40s today, how young can I be to buy? And at what point does it get to be so expensive it doesn't matter? Because we think it's hard because it's expensive. We're not thinking, oh, it's hard because I have to qualify. I'm thinking it's hard because I don't have the money.

But it's not that hard. If we can get a decent — something is better than nothing.

I always say, if you're starving, a half a sandwich is better than no sandwich.

Exactly.

So I did something a little bit differently than what you did, just because my situation was a little bit different. So you can be, with some policies, as low as in your 30s. They have business workplace, worksite policies where it can be age 18. So you can do it pretty young. And I always recommend the younger and healthier you are, the better it is.

So I bought my first policy at 38. My husband was 44, I was 38. And so we started with a $4,000 a month policy, or $48,000 a year. Why? Because it's what I —

$4,000 a month. Let's clarify. $4,000 a month, meaning it will pay for up to $4,000 of care.

Thank you. Per month, per person.

Yes, correct. Thank you.

And my husband said, well, I've seen your presentations. That's not enough. And I'm like, well, I mean, we can fully insure this thing. But would you appreciate a $4,000 check in the mailbox every month, where you only have to make up the difference? Because when I bought it, average cost was about $5,000 or $6,000 a month.

And so he was like, yeah. And I said, you only have to make up the difference. This $4,000 relieves a lot of pressure. You can hire home health care to come in and do the heavy lifting, to give me baths and get me out of bed, where you just have to do the day-to-day things. It's helpful. So anything is better than nothing.

Well, then I stacked another policy on top of it when I was 44. So I stacked a second policy on top of it for another $4,000. So now I've got $4,000 monthly for long-term care, and then I've got another $4,000.

So as you could afford more, you just kept adding.

Correct. And I'm about to do a third. So you can do that. That's the neat part. You can use them all at the same time.

We have some clients that have idle IRAs that they've just built out there. And this IRA is worth whatever it is. They'll reposition that. And they'll use the IRA to pay for themselves and their spouse. So instead of coming up with anything out of their budget, they don't have to redo their budget. They're just letting their IRA do it. That's a neat way.

If we've come into some money, if we've sold some land, if we have inherited some income, or we've inherited an IRA and we have to take it in a 10-year period of time, we can use that to do a single pay. I've done that with a client. They came into some money, and we did a single pay premium. Done. They paid one time, and they have lifetime care with an inflation rider on it for both of them.

And a lot of that is like CDs. CDs are paying point squat, right? Taxable point squat. So we have people that are repositioning that, saying, that's my emergency bucket. What's an emergency? Health. Well, you've got Medicare. So what's an emergency? Aging. Getting older. Whatever it may be. So they'll reposition that and make it work bigger and better, adding on the lifetime.

So if I inherit — I've had a lot of people inheriting money recently.

Yes.

I know boomers are passing. Aunts and uncles are dying. There's a lot of, as Nelson calls it, windfalls. If I inherit an IRA, I have 10 years that I have to take that money out.

Correct.

Or I have RMDs. There's some changes going on there. Can I use that to buy a policy without paying tax?

Not without paying tax.

Okay. So I still got to — I can't avoid the tax.

You know what? When it comes to retirement money like that, you'll always pay tax. I always tell people, I'd be driving a Ferrari if I could make it tax-free.

I knew there was a long-term care policy that I could do like a roll, right? Like an annuity care or something.

So there's a lot of things here. If we're talking IRA dollars, 401(k), 403(b) — if I inherit that, so it's an inherited IRA. So let's do this scenario, because it's easier math. Let's say my dad passes away and he's got $100,000 in an IRA. Well, I inherited that. And now, through the SECURE Act, which was a tax law that was passed, I now have to distribute that money and pay taxes on it within 10 years. Now, even though I'm under 59 and a half, I can still take that money out without a penalty, because it's an inherited IRA.

So I could take that inherited IRA, move it over to a new IRA as an inherited IRA, and that 10-year distribution will pay 10 payments — pay that 10-pay premium for myself and my husband.

Here's what's really cool about this. So it's my dad's IRA. Now I'm covered for long-term care, and my husband, which is really a blessing for the grandchild. So my dad really is blessing his granddaughter. So now that they're not taking care of that — if we never need it, they're going to get a death benefit tax-free.

From your long-term care.

From my long-term care. So I still have to pay the taxes, but I'm spreading that out over 10 years. We're seeing more and more of this. So we're going to use that 10-year distribution every year to pay premium. You have to do it anyway.

So I want to touch on something, because people are going to be like, what is she talking about? Because this is not normal. This is a OneAmerica product. That when I sell long-term care, the only long-term care I would sell you — now you're all going to go to Michelle, because I'm not going to do any of this, but you're all going to Michelle. But Michelle also agrees that the best product is the OneAmerica product that is built on a life insurance chassis.

So if my long-term care policy, if I don't need it, it has a death benefit. If I want to cancel it, it has cash value and I get the cash value. So it's not a pay-and-use-it-or-lose-it scenario. So what Michelle was saying — she just made a comment about death benefit. That's what she's talking about, because that's the product she's referencing.

Correct. So we call it live, die, quit. One of those three things will happen. And that's why these particular types of policies are so popular versus the old kind.

So the old flip phone type long-term care insurance, where you just make your premium payment like your car insurance or your homeowners — if I pay on that for 30 years and I die, the homeowners insurance doesn't send a check to my kids and go, hey, your mom never used this.

Which is why people hate long-term care. Is because they're like, well, mom and dad never needed it and they paid in. Or mom and dad got to be 85 and it kept going up in premium, and now do they keep it or not?

Right. That is not the case with the OneAmerica long-term care. Everything's guaranteed. What you buy is exactly what you get. There's no surprises. They do whole life. So ironclad guarantees.

But we call it live, die, quit, because one of those three things will happen. There's not another scenario. You're either going to live and you're going to use it for your care. You're going to live too long, or outlive. You're never going to use it for care and you're going to die — that's going to pass on to your family as a life insurance death benefit. Or you're going to quit. Maybe you fall on hard times and you're going to take that cash value back. You're going to quit the contract.

Now, I will say, these are not designed to make you rich. They are designed to keep you from becoming poor. So when people look at the cash value, they're going to go, oh, I could do so much better in investments. Not when we talk about — I call it a rate equivalent. Remember your scenario, you're paying $12,000 a year to get $97,000 a year each that you cannot outlive. You can't do that in investments anywhere else. You just can't. There is not an investment out there, and definitely not guaranteed, and definitely not tax-free.

So, is it $97,000 each, or is it a bucket of $180,000? Because if Scott doesn't need $97,000, but I need $120,000, do I get to use what he didn't use?

No, it's $97,000 each.

Okay, yeah, it's $97,000 each.

And you can use it at the same time. That's the neat part, is that it doesn't matter the dynamic. You might need care first and then pass away. Well, then he still has that plan, so it pays for him. We have the lifetime coverage.

So, $97,000 each, but once I get past $97,000, they're still going to pay? Explain that a little bit more. With the lifetime guarantee, is it not that they pay until the day I die? Even if I've used it all. For 20 years.

However long you need care.

So it's $97,000 each, but if I get past the $97,000 because I keep living, they're going to keep paying.

Well, it's $97,000 a year, or $8,000 and some change a month. For the rest of your life.

So if it just equals to be $97,000 a year or whatever it is.

So $97,000 a year would be your max that it would pay out for that year. So the next year would be $97,000. Per year.

It's per year. Yeah. Per year. So $97,000. I was thinking —

No, per year, whatever.

Yes. No, you got it.

That's why I was like, I'm confused. Explain a little more. I need my coffee.

Thanks for listening to the Farming Without the Bank podcast. We hope today's episode has inspired you to take control of your finances in new ways. Don't forget to check out our website, farmingwithoutthebank.com, and engage with us on our Facebook page, Farming Without the Bank. Join us next week as we smash more financial myths and empower you to accomplish your financial goals. We'll see you next week.