Prenups Mean Nothing When Long-Term Care Is Needed

More second marriages (65% to 70%) than first marriages (60%) end up in divorce, an important consideration for financial advisors when helping married couples plan. Often two families blended together may have very different expectations for their money when one partner dies.  But do you consider the impact if one of the couple becomes disabled and requires long-term nursing care? 

Most people don’t want to consider or talk about the need for care in later life—maybe if you don’t talk about it, it won’t happen. Some people may think that the federal government pays for long term care through the Medicare program, but Medicare is health insurance and will not pay for long-term care. Even if Medicare did pay for long-term care, 40% of all long term care in America is delivered to people between the ages of 18 and 64. 

Say your client is considering a remarriage and wants to protect the $3 million estate she brings into the marriage. If you think a prenuptial agreement will be sufficient to protect the asset, you are not considering the possibility of a stroke, Alzheimer’s, or even chronic arthritis causing a need for long-term care. Many people think that a prenup means your spouse cannot access those funds that are “protected.” While that is technically correct, Medicaid, the federal welfare program that will pay for long-term care once a person is impoverished, does not honor a prenup. So if that new spouse suffers a stroke at the wedding reception, the prenup will do nothing to prevent your client from the $96,000 a year nursing home bill.  

Medicaid, funded by a combination of state and federal dollars, is only available when someone both needs care and is impoverished. Rules vary from state to state, but in general you may retain only $2,000, which means that checking, savings, IRAs, 401(k)s, stocks, bonds, mutual funds, annuities, homes, autos, etc., must be spent down to this level. A married spouse living at home can retain certain items like the home (with a lien building up against it), one vehicle, one half of the savings (to a maximum of $115,920), and some income. Unfortunately, Medicaid does not honor a prenuptial agreement, meaning nearly all assets are at risk, and you are gambling on the health of the new spouse. 

The moment you sign the wedding license you are responsible for the long-term care costs of your spouse, regardless if it is a first or a third marriage. Nursing homes commonly run $8,000 a month, which I know having seen actual bills. Assisted living facilities cost half or less of that a month, and home care can cost much less or much more depending on how much is needed (and where you live).

Many of my clients come to me to obtain long term care insurance prior to signing the marriage license. Some of these people are still healthy enough to qualify to purchase it. Passing underwriting is becoming more difficult as the long-term care insurance companies are tightening health requirements. We are living longer, medical science is keeping us alive after medical emergencies that used to kill us, and interest rates are very low. Many companies have stopped offering LTC products because of the 5% compound inflation factor on the daily or monthly benefit, while they can earn only 3% or less on their assets.  

Long-term care insurance needs to be investigated and purchased while a client is in their 40s and 50s. So what do we do with our uninsurable wealthy clients considering a marriage? You may want to create an alliance with a specialist in long-term care financing who may have other strategies to deal with the costs of long-term care. 

While none of us can be specialists in all areas of financial planning, we do need to be aware of all the problems that can arise, and not assume a prenup will cure all the possible ills.  

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Raabe’s guest blog was written partly in response to an earlier AdvisorOne article by John Sullivan on the role of pre-nups and post-nups in planning.

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