Expert Q&A: Paying for Senior Care

Financial questions and senior housing go hand in hand, so we recently asked readers to submit their financial questions to experts at the Mutual Fund Store. Our financial experts provided in depth responses to some of readers most pressing questions about paying for senior care. Mutual Fund Store experts will continue to answer questions for us in the Ask the Expert section of our website, but for now here are five great answers to five important questions.

Q: I have heard that all of my mom’s expenses in skilled nursing are tax deductible. Is that true?

According to the IRS, “If you, your spouse, or your dependent is in a nursing home, and the primary reason for being there is for medical care, the entire cost, including meals and lodging, is a deductible medical expense. If the individual is in the home mainly for personal reasons, then only the cost of the actual medical care is a deductible medical expense, and the cost of the meals and lodging is not deductible.”

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Even if your mom isn’t in a care facility but has a skilled nurse come to her residence, that nurse’s wages are deductible as long as the care is medically necessary.

So you have two tasks:

1. First, determine whether your mom’s care falls under the deductibility guidelines outlined above.
2. If so, decide if it’s worth deducting her care by figuring out whether her itemized deductions would be greater than the standard deduction for her age. If she doesn’t itemize deductions, she’s entitled to a higher standard deduction if she is age 65 or older at the end of the year (and the IRS considers an individual to be age 65 on the day before their 65th birthday).

If you decide your mom should take the deduction, she could face limits based on her income and the percentage of her income she’s deducting. For example, the IRS states that she can deduct only the amount of medical/dental expenses that is more than 7.5% of her adjusted gross income (as shown on Form 1040, line 37), so be sure to check IRS guidelines.

Tax deductions are a very individualized issue because every person has a unique tax situation. It could be tremendously helpful if you’re able to consult a tax adviser, either paid or through a non-profit. For elderly folks who can’t afford a tax adviser, a quick internet search can be helpful in finding a certified public accountant (CPA) and other accountants in the geographic area who perform pro bono work in such cases.

Q: Who can I go to for legal advice on settling my father’s credit card bills? He is still alive. His debt is out of control. Can you recommend an agency?

While we don’t recommend a specific agency, there are some good resources available through the Federal Trade Commission.

Practically speaking, there are some steps you can take to help get the ball rolling in the right direction:

1. Make sure your father isn’t still using his cards so that he doesn’t accrue additional debt.
2. Review every credit card to see if any other individuals besides your father are associated with each account. If so, request that their names be removed from any applicable accounts if possible — this will help the other person(s) to retain or salvage their own credit rating.
3. Call each credit card company and request a settlement, which would allow your father to repay less than he currently owes and to do so within a reasonable payment structure.
4. If you’re unable to reach a settlement, seek legal advice. Since your father is in debt and likely cannot afford a lawyer, you can look for pro bono assistance.

Q: Are reverse mortgages a good way to go when cash accounts are gone after 7 years of trying to keep someone in their own house?

Reverse mortgages often have a negative connotation, mainly because many seniors have either misunderstood the fine print or simply been duped. There are lots of negative stories out there, such as how reverse mortgages can backfire, as well as warnings from attorneys and U.S. officials about the risks of reverse mortgages.

A well-structured reverse mortgage taken by an individual or couple who fully understand all the implications could be a good last resort if the homeowner’s primary objective is to remain in the home and he or she understands that his or her heirs will not inherit the home. There are quite a lot of fine print items to focus on. Among them:

• When spouses live together, what will happen to the surviving spouse when one spouse dies — will she or he lose the house?
• Will the homeowner be able to afford to pay property taxes, homeowner’s insurance, and other costs as long as they live in the home?
• Will the loan last throughout retirement?

To avoid a reverse mortgage, consider if any other options are possible, such as:

• Selling the home and having your parent move into a smaller, more manageable apartment
• Selling the home and having your parent move in with you
• Moving into the home with your parent — selling your own home if you have one

Be wary of anyone selling reverse mortgages who presents it as a miracle solution. Unfortunately, when money runs out for a retiree, there simply isn’t a silver-bullet remedy.

Q: Why are senior housing facilities either for the rich or the poor? What happens to the middle class?

Though this isn’t absolutely the case, we can understand why you feel that way: People who have little or no money may receive state aid and can, under some circumstances, live in state-run facilities or have care paid by the state in a private facility. People who have a lot of money can afford a variety of facilities. And people in the middle may not qualify for aid, nor may they be able to afford their preferred facility.

• If your initial search doesn’t reveal a good fit, you may want to consider:
• Searching in other geographic areas — you may find a good facility that is less expensive in another state or a smaller town.
• Helping your parent save money by having him or her move in with you until he or she must be in a facility.
• Moving in with your parent and providing their care yourself.
• Finding a relatively inexpensive facility where your parent can live until the money runs out. At that point, he can he or she can apply for government aid.

Q: I have a long-term care policy that I bought over 20 years ago that is designated for “nursing homes” only, as this was before the tier of assisted living. Can the policy be used for assisted living facility if the time comes?

Each long-term care insurance policy is different, so in order to fully understand how your policy can be used, you will have to call your insurance provider to ask what coverage you can receive. If you need a copy of the policy, just ask for one, as they are obligated to provide that for you.

After you’ve spoken with your insurance company, if you’re not satisfied with the information they’ve given you — such as, if you think they’re either giving you inaccurate information or trying to dissuade you from fully using your policy — then call your state’s insurance department. You can find contact information for your state here.

Lastly, speak with the people who run an assisted living facility that may be of interest to you. Because of the nature of their work, they’re used to dealing with insurance claims and may be able to provide some personal guidance.

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About the Mutual Fund Store

Providing unbiased, fee-based investment advice and asset management with a focus on doing what’s right for its more than 34,000 clients, The Mutual Fund Store is a nationwide system of registered investment advisors, which include affiliated companies and independently owned and operated franchises. Individual Stores are SEC or state registered investment advisors. Advisors actively manage personalized investment plans, extensively researching and expertly monitoring the mutual funds selected for clients. Each Store can offer investment advisory services to prospective and existing clients in the state where the Store is located, while a number of Stores may also offer advisory services in nearby or other states. The advisor may not transact business where it is not appropriately registered, excluded or exempted from registration.