Does your estate plan protect assets from long-term care costs?

Does it include a strategy for long-term care?  Many people think that if they’ve done an estate plan, they have covered long-term care or Medicaid planning issues.  Nothing could be further from the truth. Medicaid planning is not estate planning and you’ll need an Elder Law attorney to guide you through the pros/cons of why you may or may not need Medicaid planning in addition to an estate plan. The biggest consideration for Medicaid planning is to ensure that an individual will have access to Medicaid and other government benefits if they suffer from a long-term illness. Otherwise, your entire life savings could be spent on these costly services. Here are a few things to consider.

Estate Planning Vs. Medicaid Planning

As we get older, more than 70% of seniors will require some form of long-term care. Long-term care or Medicaid planning strategies address different challenges than estate planning. These planning strategies are best handled by an elder law attorney who understands the nuances of the Medicaid system, local and federal laws, and accessibility for long-term care options.

In short, care in a skilled nursing facility can be extremely expensive and many seniors to do not plan in advance for the costs associated with long-term care. The median cost of skilled nursing home care in Maryland is nearly $10,000 per month. And, unfortunately, the large majority of senior citizens will require long-term care at some point in their lifetime. These costs can quickly diminish a life time of savings. Medicare will not cover the costs of long-term care, but Medicaid will.

When we talk about Medicaid planning, many people think that this is something that only needs to be considered for underprivileged people.  Quite the opposite is true.  Medicaid planning, sometimes also referred to as long-term care planning, is important for anyone that is going to need long-term care.  It is especially important for family members such as a spouse or children, to help preserve family assets, while providing the elderly family member access to benefits for long-term care costs.

The Five Year (60-Month) “Lookback”

Before a senior is entitled to receive Medicaid benefits, the government will ‘lookback’ on the previous five years to get an overall financial picture of the senior’s assets.  If gifts have been made or assets sold, these may be counted as ‘penalties’ against future benefits.  By pre-planning, you have more options for spending down and saving your assets.  This is especially important for preserving family assets and providing a nest egg for the spouse that still needs to live independently.   One of the most beneficial aspects of Medicaid planning is to fund a long term care trust, which must be done five years (60 months) prior to needing long term care Medicaid benefits, according to the Centers for Medicare and Medicaid Services (CMS). Asset transfers and gifts made within five years are subject to penalties, which is why it’s so important to start long term care planning now, not later.

Why Medicaid Planning Needs to be Done 5 Years Prior to a Crisis

Chances are that if you are 65 or older, you will need long term care at some point during the remainder of your life. 47% of men over 65 and 58% of women over 65 require long term care, according to Morningstar. The downfalls of not planning at least five years before a medical crisis include the following:

• You Could Lose Everything to a Nursing Home—By not protecting your assets, you will not qualify for Medicaid, and should you need long term care you will have to pay out of pocket. Assisted living and nursing home rates are high, and are only getting more exorbitant with each passing year.
• Your Health is at Stake—When elderly people do not qualify for Medicaid because their assets are too high, but still do not have enough to pay for long term care planning, they often sacrifice their health and stay home alone, which leads to poor quality of life, and often a shorter life as well.
• You May Not Be Able to Leave an Inheritance to Heirs—If you wish to leave your heirs an inheritance, you can start doing that now by providing tax-free gifts of up to $15,000 per year. This money may be more useful to them now than in 10 or 30 years down the road anyways. But, if you fail to start gifting now, you may not be able to leave anything behind. Your assets must be very low in order to qualify for Medicaid, and by having $100,000 in stocks or in a bank ready to give to your adult child, you will not qualify. If you start gifting early, you can avoid this problem. Additionally, if you gift early and then stop gifting five years before you need long term care, none of the gifts will be subject to Medicaid penalties.

Frame & Frame – Your Maryland Elder Law Attorneys Can Help 

As with all aspects of estate planning, the key is to begin before you actually have a crisis.  If you are helping your parents with their estate plan, be sure that it includes long-term care planning.  Not all estate planners specialize in elder law or Medicaid Planning.  It’s important to have open and honest conversations with your parents or spouse about long term care planning.  Start the process by talking with an experienced Maryland elder law attorney. Contact the law offices of Frame & Frame today to set up a free 15 minute consultation.

Download our Free Guide to Medicaid Planning today.

Sources:

morningstar.com/articles/957487/must-know-statistics-about-long-term-care-2019-edition

cms.gov/Regulations-and-Guidance/Legislation/DeficitReductionAct/downloads/TOAbackgrounder.pdf