If your parents are still living, this article should serve as a wake up call when it comes to your parent’s financial plans and your personal financial responsibility for your parents. Whether this does or does not concern you, it may have a major impact on someone you care about.
The average cost of care in a nursing home currently ranges between $5,000 and $9,000 a month ($60,000 – $100,000 a year). This is for chronic or “skilled nursing care” due to a chronic condition such as Alzheimer’s Disease. Even if long term chronic care is not an issue, emergency procedures and hospital stays can easily generate medical bills in the 10’s and even 100’s of thousands of dollars.
The question given these large numbers, and the ongoing problem of rising healthcare costs is, if a court awards a judgment for unpaid medical bills, can you as the adult child be held responsible? If you’re like many adult children, your first response may be something like ”that’s absurd!”
Filial Responsibility Laws
However, if you live an any one of a number of states that have filial support laws, your responsibility, and consequent neglect, could lead to civil or criminal penalties. That means you could be held legally responsible and required to pay your parents medical bills, nursing home costs, fined and face potential jail time.
Is this currently happening? A little. Do we expect it to happen more into the future. You bet. With rising long-term care costs and boomers now retiring in droves, states will look to elderly parent’s family members to help cover costs and unpaid bills the states do not want to pay. And it has already occurred a few years back in Pennsylvania to the tune of over $90,000 judgment against the appellant to pay for his mom’s skilled nursing home care bill.
Currently, 30 filial responsibility states (Alaska, Arkansas, California, Connecticut, Delaware, Georgia, Idaho, Indiana, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Mississippi, Montana, Nevada, New Hampshire, New Jersey, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Virginia, and West Virginia) have passed statutes that cover “filial” responsibility laws.
Under filial responsibility laws adult children may be required, and held liable, to pay for a parent’s medical bills if certain circumstances exist which are broadly summarized as follows:
- Parent is receiving financial support from state government
- Parent has accumulated a nursing home or medical bill in the state in which the filial responsibility law exists and cannot pay
- Parent is classified as “indigent” meaning that their expenses exceed social security benefits
- Parent does NOT qualify for Medicaid
- Caregiver has reason to believe that adult child can pay the bill and chooses to sue him/her
Under the various State’s statutes, if a court in one of these filial responsibility states orders that a judgment may be enforced against the adult child, any number of unfortunate legal remedies, such as liens, wage garnishments, and even potential jailtime can be imposed, depending upon your state’s filial responsibility laws.
Exceptions to Filial Support Laws
The good and bad news is that judges have “discretion” when enforcing these filial responsibility laws, and it comes down to a factual inquiry in a court of law. In filial support hearings, the adult child would need to demonstrate that he/she does NOT have adequate funds due to other responsibilities such as student loans, cost of living, medical bills, etc.
It may also be effective if the adult child can show abandonment or other reasons for lack of ongoing relationship with their elderly parents. But proving abandonment is a tall task and requires that the adult child prove various elements, including that the parent abandonment occurred while the adult child was a minor.
Finally, in a filial support hearing before the court, you might be able to offset some of your financial obligation by showing mitigating circumstances that would make it immoral for you to have to pay full support, such as demonstrating prior bad acts by your parents.
The bottom line is you may be responsible for your parents long-term care expenses, such as unpaid medical bills and nursing home costs. And without a plan in place, you are setting yourself up for a potentially catastrophic financial tsunami in the future.
Key Takeaway: Plan Today
Another important “takeaway” regarding filial support obligations is that adult children, particularly in these filial responsibility states, should be as concerned with a parent’s long-term care (LTC) planning as the parents themselves. LTC planning is part of having a coherent estate plan, and should involve input from a number of professionals such as an estate and elder law attorney, a tax advisor and an insurance expert focusing on long-term care insurance (LTCI) options.
There are various options for long term medical care planning such as:
- Standalone long-term care insurance
- Life Insurance Riders
- Long-Term Care Annuity
- Pre-Medicaid Planning
- Asset Protection Planning
All of the above should be considered as essential aspects of your family wealth protection plan because long term medical care costs are a very calculable risk. If certain steps are taken in advance, needless stress and financial fallout can be limited and potentially avoided.
Traditionally, the best long term care insurance has been standalone policies, since they provide the greatest flexibility at the lowest price. Long-term care insurance claims require that you be diagnosed as a “chronically ill individual”, which basically means you are unable to perform 2 of 6 activities of daily living or have a severe cognitive impairment, such as Alzheimer’s Disease.
LTCI provides a reimbursement for qualified expenses, such as in-home care, nursing facilities, adult day care, home modifications and assisted living facilities. Many of these services can run in excess of hundreds of thousands of dollars, making long-term care insurance costs look attractive in comparison.
Another option to consider is life insurance long term care rider. These policies are combination long-term care life insurance contracts that provide you with many benefits, such as a guaranteed lump sum death benefit, guaranteed long-term care benefit, cash value growth and potential return of premium. These hybrid life insurance long-term care policies are a good alternative for those who don’t like the “use it or lose it” feature of traditional LTCI.
Asset based long-term care insurance comes in different forms. One way people pay for long-term care insurance is with an annuity. A Long-Term Care Annuity is a single premium annuity that allows you to withdraw from your annuity’s accumulated value to pay your LTC expenses. And if you don’t use your accumulated value, it can go to your spouse upon your death. Another benefit of single premium long-term care annuities is you do not have to worry about your premium on your LTC policy increasing.
Having a plan in place regarding medicaid will put you ahead of the majority of Americans who put little to no thought into this subject. Thanks to the Deficit Reduction Act of 2005, qualifying for Medicaid long-term care coverage is tough. One Pre Medicaid Planning step is familiarizing yourself on your specific State’s Long-Term Care Partnership Program is a great step to take to understand how LTCI can actually protect your assets if you are forced into a Medicaid “spend down”.
Proper asset protection planning requires not only a plan but the ability to execute. Staying aware of tax laws, such as the current federal estate tax exemption limit, are vital to any proper estate and asset protection plan.