How to Pay for care

This is the third post in a three-part series on the costs of senior care. In the first post, we looked at the various options available to seniors: retirement homes, assisted living, long term care (LTC) homes, and in-home caregiving. In the second post, we took a more in-depth look at how much these different options cost. In this third post, we discuss the ways in which elderly care can be funded.

Savings and Investments

Of course, the logical answer to how to pay the costs of long term care for our parents, spouses and ourselves is to use savings and liquidate our investments.  If you have them, or have any left after retirement while entering your ‘disability years’ (see the first post in this series), then that may be used up first to fund the cost of care.

How to pay for care: The family home

At the time of writing this post, the Canadian housing market is still strong, and house prices are favourable to consider using the equity in a home to fund the costs of long term care for elderly loved ones. If your parents own a home, the home can be sold and the money used to pay for your parents’ care. Parents can downsize into an apartment, or move to a retirement home or LTC facility.

If staying in their own home is important to your parents, they can directly draw on the equity in their home to pay the costs of home care. The two most popular options used right now are the Home Equity Line of Credit (HELOC) and the reverse mortgage.

How to pay for care: The home equity line of credit (HELOC)

A home equity line of credit, or ‘HELOC’, allows the homeowner to borrow money against the value of the home, up to the available equity on the home. This allows you to borrow and re-borrow against your home, and if the line of credit isn’t paid, your home is the collateral. With a line of credit, you borrow the money and begin paying it back immediately.

Monthly payments of interest only are available. So if you took out $100,000, you’d pay $292 a month in interest, using an interest rate of 3.50 per cent. It is advised that the senior’s income should be high enough to cover the costs of interest payments – and that the line of credit itself is not used to make the payments!

Many families getting into an intense phase of caregiving requiring full-time attendant care at home are in need of lessening their responsibilities, and streamlining life so it is not so hectic and overwhelming.  Keeping track of monthly payments to the HELOC may not be something that can be undertaken by an already exhausted family.

HELOCs are offered by banks, brokers and other lenders. To get a HELOC you have to qualify. The lender will check your credit, verify your income and analyze your debt obligations. Rising interest rates or excess borrowing will hike monthly payments.

If times get tough and the senior can no longer afford the HELOC payments, or runs out of borrowing room, they can usually refinance the HELOC into a reverse mortgage.

How to pay for care: Reverse mortgage

Reverse mortgages can only be taken out from HomEquity Bank’s “Canadian Home Income Plan” (CHIP). The bank lends anywhere from 20 to 50 per cent of a home’s value, depending on the applicant’s age, location, existing secured financing, and property type.

There is no tax payable on the money you are borrowing, and the income does not affect government income supplement plans such as Old Age Security and Guaranteed Income Supplement.

With a reverse mortgage, if you’re 55 or over with sufficient equity and a marketable house, you generally qualify. You never have to make a single payment, the full amount only becomes due when your home is sold, or if you move.

With a reverse mortgage you maintain ownership and control of your home. You will never be asked to move or sell to repay the mortgage. All that’s required is that you maintain your property and stay up-to-date with property taxes, fire insurance, and any condominium or maintenance fees.

More information about reverse mortgages can be found on the CHIP website

How to pay for care: Get the most out of the Canadian Revenue Agency (CRA)

We are often asked whether or not in-home care is tax deductible.  The answer is ‘yes’.  To get the best tax breaks on the money spent paying for care, get an accountant who is familiar with medical and attendant care.

Expenses to discuss with your accountant include the following:

• medical and dental services, dentures, eyeglasses
• attendant care at home (personal care, housekeeping, meal preparation)
• Long term care facility or nursing home care
• ambulance services, transportation services
• wheelchairs and other supportive devices
• diapers, catheters and other incontinence products
• home alterations, construction and renovations to assist care
• moving expenses
• costs to adapt a van for a wheelchair
• training courses related to caring for a disabled person
• prescribed medications

For siblings banding together to pay for care for their parents, each person financially contributing to the costs will be able to claim for their expenses.

Employee assistance programs and Long term care insurance

Some employee assistant programs offer benefits for in-home nursing care.  Check to see if anyone in your family has this coverage, and if the policy covers parents or spouses.

If your parents have been paying into a Long Term Care Insurance policy, the policy will most likely be paying for most of the care costs already.  We will be covering the nuances of long term care insurance in a future post.

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