Q: When you get to be my age, nursing home expenses scare the heck out of people. I know that you have both recently spoken and written about long- term care, but I am still confused.

A: I will do the best that I can in the space that I am given. Remember, the advisability of long-term care varies from person to person and depends upon various factors such as age, health, family history, economic status, emotional comfort, the cost of the insurance, etc.

To help you make a decision, I will try to give you a format to bring all of the tangible factors together. First, the cost of nursing homes in the area probably averages around $4,500 a month. But, with the normal "add-ons," costs realistically reach between $5,500 to $6,000. Thus, an annual cost of up to $65,000 or more is not unrealistic.

Next, look at your own income stream, not only the income you take, but also the income and dividends tax that you leave untouched but could be used. Also consider the possibility of rearranging investments to produce more income, or using previously untapped sources of income, such as rental income from renting out the house (since you will be living at the nursing home).

For example, if $4,000 can be generated in monthly income from all sources to satisfy an outflow of $5,500 (just an arbitrary figure picked for illustrative purposes to represent nursing home expenses), then there is a net monthly loss of $1,500. If after going through the foregoing adjustments, only $2,000 can be raised, then the true outflow would be $3,500 a month ($5,500 less income of $2,000).

So, first look at the possible net impact on your equity assets by calculating your income flow. The next question is how long this draw down of resources can realistically last?

Here all kinds of figures are thrown about. But from the elder law seminars I have attended, the following numbers seem fairly consistent and are given by those who do not have an agenda (such as selling financial products). Eighty percent of the population over the age of 70 will spend some time in a nursing home, with the average stay of thirteen months. Although we all know of people who have been in nursing homes for years and years, only twenty percent over the age of 70 will be there for more than 13 months. And the stay for forty percent or more will be for six months or less. Twenty percent will never go to a nursing home.

If the qualifications are met, Medicare can pay for up to three months of care in a nursing home, thus dropping the average stay for sixty percent of the over-70 folks to ten months or less. (Remember, twenty percent will never be in a nursing home.)

Thus, if $4,000 of income would be available, then 10 months times $1,500 ($5,500 minus $4,000) would be $15,000 of impact on assets. (For those who maintain that the average stay is more than 13 months, then just multiply that figure by $1,500.) If the income level was $2,000, then multiply $3,500 ($5,500 minus $2,000) times 10 months for a total cash drain of $35,000. Just adjust the figures of net income and nursing home costs to come up with your own figures. Thus, comparing the cost of $65,000 a year vs. a total cost of $15,000, for the average stay of someone with $4,000 of income, may put things more into perspective and lessen some of the emotional impact that just looking at figures causes.

Of course, the rub is guessing whether you fall in the top twenty percent or the other eighty percent. Unfortunately, no one can say with certainty even after reviewing the intangible factors such as health, family history, etc. mentioned at the beginning of the column.

However, remember that it is possible to transfer assets and then qualify for Medicaid after three years. So, at most, for the twenty percent folks, the drain should last three years or less if the proper planning is done.

So, should people just give everything away? NO!! There are issues of financial independence, capital gains exposure resulting from the loss of the stepped-up basis for appreciated assets at death, gift tax consequences, etc. Ð all of which often exceeds the potential cost of the nursing home. And, such things as revocable trust, irrevocable trust, annuities, etc. will probably not work either, but that is a subject for another time.

This is an important area, so before making a decision, do take the time to get a second opinion, such as from your attorney, CPA, a financial advisor who is not trying to sell a product, etc. But, at the very least, I would humbly suggest that you use the model and the information contained in this column as one tool to help reach a decision.