Estate planning starts with a goal. What are your goals? Is your goal to preserve assets for the security of you and/or your spouse and leave an inheritance for your family?
What are the greatest threats to this goal? Taxes are not a concern for most people. For at least the next ten years, estate taxes will generally be due only from people who own over $2 million at death. Likewise, hospital bills are not a threat. Due to Medicare, anyone over the age of 65 who paid into the Social Security program during their working years will not be liable for substantial hospital or doctor bills.
The Long-Term Care Problem
The greatest threat to the financial security of most families is the cost of long-term care. Most nursing homes in this area charge over $3500 per month. These costs are increasing at almost 10% per year. Most middle class families do not have enough income to pay for nursing home costs without liquidating principal.
The monthly rent of 70% to 80% of all residents in any given nursing home are being paid for by Medicaid
These residents either qualified for Medicaid because they spent all of their assets on medical care or because they were able to plan in advance to protect their assets from nursing home costs. Federal law requires that a person on Medicaid must receive the same level of care as a person who is paying privately.
Do you have to be “destitute” to get Medicaid?
Preserving assets makes sense for other reasons. If a person chooses to spend all of their assets on nursing home care and then try to qualify for Medicaid, they will have nothing left for any extras not covered by Medicaid. For example, Medicaid often won’t pay for items such as dentures, eyeglasses and hearing aids. Other quality of life services such as a telephone may not be included. Finally, we all know someone who loves to have their hair or nails done once a week whether they need it or not. It just makes them feel better, even if they are in a nursing home. If a person on Medicaid needs something that is not covered, he or she either does without, or relies on children to pay for whatever is needed. Adult children often have no extra funds to pay for the needed service.
However, if some advance planning is accomplished to preserve assets, the adult children will have access to assets to pay for those extra quality of life products and services that may allow Mom or Dad to experience a higher quality of life during their last years.
adult children will have access to assets to pay for those extra quality of life products and services
Congress is deemed to know the effect of the laws that it passes. Any loopholes are theoretically left in the law intentionally. No one fails to take advantage of an income tax deduction or other loophole when they are completing their tax return. Similarly, no one should fail to take advantage of a loophole left in the law by Congress that might help their family preserve some assets and qualify for Medicaid sooner than if no planning had been undertaken.
No one wants to admit, especially while in perfectly good health, that they might end up in a nursing home someday. However, it can happen suddenly, such as in the case of a sudden stroke or fall. Or it can result from a relatively slow disease process such as Alzheimers.
Until recently, it has been possible for someone to deny that a medical crisis could ever occur. Therefore, they undertake no advance planning, experience a sudden health crisis, and enter a nursing home. They could then send their family to see an elder law attorney and still successfully protect their house and a substantial portion of their liquid assets. However, the State of Texas and the U.S. Congress recently enacted major changes that will make it much less likely that a person will be able to live in denial until a medical crisis occurs and then successfully undertake crisis planning.
…it will be possible for someone to plan in advance and maintain control, yet preserve their home and savings for their own use…maybe even an inheritance for their kids…
Due to these changes, it has become crucial for people desiring to preserve assets for spouse and children to plan far in advance of the date they may someday enter a nursing home. In many cases, it will be possible for someone to plan in advance and maintain control, yet preserve their home and savings for their own use, their spouse’s use and maybe even an inheritance for their kids. In conclusion, don’t deny that you might need long-term care. Instead, make sure your estate is protected from that threat. Those who plan far in advance will accomplish their goals, even if they experience a long-term care crisis.