Dear Moneyist,
I wrote to you some time ago about my uncle who is suffering with dementia. I wondered whether I should pay off his mortgage before he can no longer live alone and you gave me advice — thank you for that. Since then the landscape has evolved and, sadly, the circumstances have accelerated faster than I had anticipated, especially over the last six weeks. While I care deeply and desperately want to help, I am simply not qualified to oversee — let alone, administer — the care needed at this point.
For my uncle’s safety and my peace of mind, he now needs 24 hour coverage. I have contracted with an in-home care provider whom I like and trust, but it costs $22 per hour. The cost is unsustainable. However, the step to community care is also expensive but it appears to be the best (and only rational) path forward. I’ve found a nice facility that meets or exceeds the clinical criteria, my care expectations and appears to be a place where he would be well cared for and comfortable. The monthly expense will push expenses past his monthly income by about 11%.
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I can certainly pare back in a few places, but he does not live extravagantly so what could be eliminated will not cover the shortfall, nor will it give me an opportunity to accrue for taxes or any unexpected costs (24/7 in home care has consumed the savings account I’d been building). I am willing to contribute more here, but my daughter begins college in a month so we are about to feel additional pressure and it’s not clear to me at this point how much we can afford. He does not have long-term care insurance and he is not a veteran.
All that as context, my question is (again) about the house: I still feel strongly that the home remains his last line of defense against the high probability of increasing medical needs. Is refinancing a possible solution to bridging the cash flow gap and creating a little more breathing room? The mortgage is about 80% paid off and there is no other consumer debt lurking out there. I do not know if there is a homeowners’ association stipulation regarding renting, but I suspect there is a restriction because I am not aware of any rental situations in the neighborhood. Is long-term care deductible?
Jim from Illinois
Dear Jim,
You should first see if your uncle qualifies for long-term options under Medicaid, and establish (a) whether he qualifies, (b), if so, for how much and (c) if selling or renting, or even refinancing his primary home would impact his ability to qualify. In many cases, your principal residence is not counted as an asset/resource up to a certain level of home equity, but this varies from state to state. Those eligible for Medicaid are older adults or people with a disability who meet certain common requirements, such as having income and assets below certain levels. You can read more here.
This will be a steep learning process for you and your uncle. Here are some of the myths associated with Medicaid. And, as I mentioned in my previous response, take the necessary steps to become his power of attorney that allows you to make medical and financial decisions on his behalf. Medicaid, for those who qualify, pays for more than half of long-term care expenses. Nearly 20% of Medicaid expenses currently go to the elderly, primarily for long-term care, as so many people in your uncle’s position exhaust their savings and assets in an attempt to pay for care.
Also see: How are people going to pay for long-term care?
Having made those enquiries, don’t assume that rentals are prohibited because you don’t believe others are doing it and, with the consultation of an estate lawyer who navigates Medicaid and long-term care, consider selling your uncle’s home, which would free up the 80% equity built up in the property, and also free you from all the other expenses that come with managing a property. As you say, refinancing and reducing the monthly mortgage payments is another viable option. The U.S. Department of Housing and Urban Development has a “Making Home Affordable” program.
Is long-term care deductible? Yes, but with some qualifications which shouldn’t be an issue for you, says Neil Krishnaswamy, a certified financial planner at Exencial Wealth Advisors in Frisco, Texas. Your uncle must meet the definition of being chronically ill. “Given the level of assistance he needs now and the level of his cognitive impairment, this definition would appear to be satisfied,” he says. Your uncle would also have to itemize deductions. “Given the substantial costs involved, it would appear most of your uncle’s long-term care expenses would be deductible,” he adds.
Good luck with finding your uncle suitable long-term care. He is lucky to have a nephew like you fighting for his comfort and peace of mind every step of the way.
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