Thursday, July 30, 2015

Assisted Living

My parents are in their 80's and both in failing health. My mother has mild Parkinson's disease, has lost her sense of balance, and taken a couple of falls recently. She was assessed by the local Office of Aging as eligible for assisted living.

So the siblings have been helping the parents weigh their options, as far as assisted living facilities. These facilities range in price from $8000-14,000 per month. So even though my parents have significant savings, and own their own home and car, their income will only cover these expenses for less than ten years.

Medicaid, as the funder of last resort, will cover various assisted living expenses, but only after cash is depleted. My siblings asked about ways to "shelter" the parents assets and income during their remaining years. Here is what I proposed:

Here is what I would recommend when they do sell their house:
Sell it with Seller Financing. Get a big enough down payment - but ONLY big enough - to cover any immediate cash needs. The balance is paid to Mom and Dad in monthly installments that are below the threshhold that still qualifies them for Medicaid, but allows them to keep all of the monthly income coming in. Maybe require a cash-out in 15 years (which would most likely go to the heirs).

Here is what I would recommend for their Savings:
Buy as many free and clear income properties as they can. Receive the same monthly income that can be used to cover their current living and medical expenses.

Here are some properties I have that are currently seller-financed. I could cash out my current lender and pay Mom and Dad the income I am currently paying my Sellers *:

Rental House, Ballard, WA (purchased 08/12) - 
current tax-assessed value - $545,000
current balance owed to Seller - $409,000
current payments to Seller - $1550.33*
current NET monthly income - $2000+

Rainier Beach, WA (commercial property, purchased 07/14)
currently listed at $550,000 (for valuation)
current balance owed to Seller - $283,250 
current payments to Seller - $944.17*
current monthly income - $1099

If the parents cashed out my Sellers for a total investment of $692,250, they would still have over $100,000 of cash on-hand to cover immediate expenses, have a 1st lien position (held by the family trust?) on two income-producing properties, and have a monthly income of $2494.50 (annually $29,934) which would be equivalent to a 4% return on their investment, likely better than what they are currently earning in the stock market after fees and expenses.
Unfortunately Medicaid will only allow a monthly income of about $1200 per couple, but certainly any investment could be adjusted to fit within their guidelines. The $2500 or so of income outlined here would not be sufficient to pay their assisted living bills, but would at least extend the length of time they could continue paying out of pocket with their current resources.

Apparently Medicaid would allow them to keep their primary residence and a car, although their best option now is to move out of the house and into assisted living. There is also some kind of Medicaid "buy-down" that was recommended to explore - any of my readers heard of this? or have any other suggestions?

Long term care insurance is expensive when you wait. End of life costs may be quite significant. Are you prepared? You are investing for a reason, but is it enough?

Happy Investing!

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