No one wants to think about a nursing home, but as you advance in years, this is a must. Should you gift money to your children before nursing home costs? The short answer is maybe. While this is definitely an option, you need to consider all your nursing home costs, insurance and benefits before gifting to your children.
Establishing Gift Amounts
Gifts to Adult Children
Parents may choose to provide some funds to their children during their (the parents') lifetime. They can give an adult child a gift of up to $12,000 per year without the penalty of gift taxes. The parent can choose to give away as many of these financial gifts as they like.
Gifts to Minor Children or Grandchildren
When the recipient of the gift is a minor child or grandchild, the situation is a bit more complicated. Minor children cannot legally receive gifts of money. Due to the minor child's lack of maturity with respect to money matters, the funds will need to be treated in a special way.
An option for giving a monetary gift to a minor is to set up a trust. The giver can establish the terms of the trust, and the funds can be used to pay for the child's needs. The funds can be withdrawn completely when the young person reaches the age of 21. If the child dies before the age of 21, then any funds held in trust would be distributed according to the child's or beneficiary's will.
Financing Nursing Home Costs
If you are considering gifting to children before nursing home costs, then you will need to have a plan that ensures that you have the necessary funds to pay for nursing home care.
Use Retirement Funds
Paying for nursing home care out of one's benefits is an option. Unfortunately, if the stay is a long one, it is likely that the nursing home resident will exhaust all savings before the end of his or her life.
Some government assistance is available for low-income people. Applying for Medicaid is an option if the senior has few assets. But keep in mind that programs such as Medicare do not cover long-term home stays, just marginal stays related to medical rehabilitation.
Buy Long-Term Care Insurance
A long-term care insurance policy is a good choice for people who want to have protection in place in the event that they need to stay in a nursing home. According to the report entitled "Long-Term Care: Baby Boom Generation Increases Financing Needed Services (2001)" released by the United States General Accounting Office, the average annual cost of a stay in a nursing home is $55,000.00.
Long-term care insurance provides benefits during a period of time when the insured is unable to perform basic activities of daily living. These activities include walking, bathing, eating, dressing, and getting in and out of bed. This type of insurance is not just for seniors; it will provide coverage for someone who has sustained a serious injury or who has a chronic disease.
The best time to purchase long-term care insurance is during middle age. The amount of the premium increases as a person ages.
Choosing Gifting to Children Before Nursing Home Costs
If you have long-term insurance in place, you can choose gifting to children before nursing home costs. In a situation where no long-term insurance coverage is in place, then a better choice would be to conserve one's financial assets in case they are needed to finance a period in a nursing home.