Monday, May 24, 2004

NEW YORK - As their parents and other relatives age, many baby boomers are struggling to help finance their care at home or in institutions.

Some boomers are assisting parents in marshaling their resources — including borrowing against their homes — to cover fast-rising care costs. Others are digging into their own pockets to pay for relatives’ care or buy long-term-care insurance policies.

Those who are poor look to Medicare and Medicaid coverage. Some wealthy families do the same, engaging in what’s known as “Medicaid planning” to spend down an elderly person’s assets so he or she qualifies for a government-funded nursing home.

All are strategies aimed at dealing with the high cost of elder care. The American Health Care Association estimates that the cost of a nursing home can exceed $50,000 a year, while assisted-living facilities average $24,000 annually.

It makes sense for boomer children to get involved early, said James Mahoney, chief executive of Financial Freedom, an Irvine, Calif., company.

“Kids become the caregivers and helpers in deciding how seniors should be taken care of,” he said. “The natural extension of that is helping the seniors plan their finances for their retirement needs.”

Mr. Mahoney’s company specializes in reverse mortgages, which enable elderly homeowners to borrow against the equity in their houses, yielding a lump sum or monthly payments that the seniors can use to pay for services they need.

For Deneene Savoy-Ross, 39, a human resources manager in Bethesda, a reverse mortgage was the way to help deal with the needs of her great-aunt, 88-year-old Amy Crump, who relies on a walker or wheelchair to get around.

“We want to put an addition on her house to give her more space on the ground floor,” said Miss Savoy-Ross. “And she’s fallen a couple of times, so we think it would be safer to have someone in the house with her at nighttime.”

Money from the reverse mortgage will cover those costs and let her great-aunt stay in her home, Miss Savoy-Ross said.

“It’s peace of mind for me, and she’s comfortable with it, too,” she added.

Medicaid, the joint federal-state program that pays for nursing home care, is the fallback for many families, said Marilee Driscoll, author of “The Complete Idiot’s Guide to Long-Term Care Planning.”

Boomers who have elderly parents with little income and few assets generally find that they easily qualify for Medicaid assistance, she said.

But increasingly, middle class and wealthy families — desiring to protect the parents’ assets for inheritance purposes — are looking at ways to “spend down” those assets to qualify parents for Medicaid support.

Medicaid planning involves removing money from the parents’ control so their income and assets are low enough to qualify them for nursing home aid. In some cases money is “gifted” to children, or it is invested in irrevocable trusts, or it is spent on things that don’t count for Medicaid calculations, such as paying down a mortgage or replacing a car.

“They want their money to pass to the next generation,” Miss Driscoll said. “It’s perfectly legal, but it’s putting a tremendous strain on the Medicaid system, which was designed as a safety net for the poor.”

It also “limits their care options to a nursing home in most states,” Miss Driscoll said.

On the other hand, families with the ability to pay — either through carefully managed savings, the use of reverse mortgages or long-term care insurance — have many more alternatives, from in-home care to community-based adult day care to assisted living, she said.

Financial planner Jim Pittman, who is affiliated with the Million Dollar Round Table of life insurance and financial service professionals, believes long-term-care insurance is a good way for boomers to ensure that their parents’ needs are covered.

“Take the case of the older woman who is absolutely terrified of having to spend all the couple’s assets taking care of the husband and being left an indigent bag lady, dependent on her children,” he said. “Either you’re going to go out and insure that risk, or keep your fingers crossed and hope you’re among the 50 percent who don’t need help.”

Mr. Pittman said he is seeing more boomers buying long-term-care policies for their parents and themselves.

That’s what Diana and Michael Marsden, both 45, of suburban Portland, Ore., have done.

Diana Marsden, who works in advertising, and her husband, who runs his own business, purchased coverage for her parents, who are both in their 70s.

She said that watching her husband’s parents struggle to pay for his grandparents’ care in a home for the elderly persuaded them to look for an alternative.

“It’s a pretty simple concept for me that approximately one year’s annual premium for long-term care is about half the cost of one month in a nursing home facility,” she said.

She added: “When you figure that people are living longer, and the chances are at least one of your parents will need some sort of assisted care in their elder years, it is more than worth the investment.”

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