Filial responsibility and life insurance
Most adult children are willing to do anything for their aging parents. But what if the thing you needed to do was something you couldn’t afford? In many states, laws exist that require adult children to pay for their parents’ long-term care if the parents can’t afford it themselves. That can be a heavy burden if the kids don’t make a lot of money or are raising a family of their own.
What is filial responsibility?
Filial responsibility laws were developed before Social Security, Medicaid, or Medicare came into existence. The word “filial” comes from the Latin words for son and daughter. These laws state that children of elderly persons are required to pay for their parents basic needs if the parents are unable to support themselves.
Who has filial responsibility laws?
Currently, just over half of U.S. states have filial responsibility laws. But not all filial responsibility requirements are the same. For example, Arkansas only requires children to pay for their parents’ mental health expenses, while Nevada requires a written agreement from children to pay for their parents’ care. You can do a quick internet search to see if the home state of the parents in question has this kind of law and what level of support it requires.
Why Medicare and Medicaid might not be enough
Many elderly adults and their children think that Medicare or Medicaid will provide for long-term care if elderly parents become too weak or infirm to care for themselves. But that’s not necessarily true.
Medicare usually only covers short stays in nursing homes for rehabilitation or physical therapy after a hospital stay. Medicaid will pay for long-term nursing home or home assist care, but typically only if the elderly person is shown to have very limited financial resources. As a result, some people have to “spend down” a significant portion of their assets to qualify as “low-income” in order to qualify for Medicaid. The elderly person may do this by paying off their mortgage, paying off debts, or spending money on things like home care. You should know, however, that the government will look back a maximum of five years to see how your assets changed. So simply transferring assets to children in order to appear to have less money than you really have isn’t an option.
Currently, most states do not strictly enforce the filial responsibility laws because so many elderly people are able to qualify for Medicaid. However, if a nursing home or other care provider suspects that a parent transferred money or assets to their children to avoid the Medicaid “spend down,” they are more likely to take action.
Sometimes, though, it is not possible for an elderly parent to qualify for Medicaid even with a “spend down” plan. Some financial experts think this will become more common in the future because of the strain the large Baby Boomer generation will put on the Medicaid system. In that case, filial responsibility laws may be more widely enforced and children may find themselves responsible for a greater portion of parental care.
How to help protect yourself or your children from paying for parental care long-term
If you think you could be affected by filial responsibility laws, purchasing long-term care insurance may help provide protection. Aging parents can purchase it for themselves. It may also be possible for adult children to purchase long-term care insurance for their parents, assuming the parents give their permission to do so.
In many cases, a long-term-care insurance plan can be used in partnership with a state Medicaid program. A partnership program allows people to divide the cost of long-term care between the insurance and Medicaid so that they don’t have to “spend down” all their assets. So, if the parent has $100,000 in coverage, $100,000 in assets will be protected from the “spend down.”
A potential drawback of purchasing a stand-alone long-term-care insurance policy is that the parent may never need long-term care—so they’ll never use it. Also, the money put into a long-term policy can’t be left to loved ones if it goes unused. One option may be getting a regular life insurance policy with a death benefit that will reimburse children for all or some of the money they put towards a parent’s long-term care after the policy holder has passed away. Some life insurance policies also offer “accelerated death benefits” which begin to pay out the death benefit if the parent is diagnosed with a terminal illness and needs money for care. Keep in mind that care payments made through a life policy often reduce the amount of money loved ones get after the policy holder passes away.
You can make long-term care less stressful by thinking about the impact of filial responsibility laws in advance. Insurance plans may be one way to protect against unaffordable long-term care-related costs where filial responsibility laws are in force.
This is not intended to be a recommendation, meet with a financial planner for a personalized plan.