How has the market affected your security?

The economic upsets of the past few years have made Long Term Health Care Planning more important than ever.

Many retirees have seen their retirement savings balances decrease as the stock market has fallen over 40% from its all time high.  Creating an estate plan designed to help a family qualify for assistance with long-term health care expenses has become even more important in this increasingly uncertain financial environment.  There are dramatic asset protection benefits available to those who develop and execute their plans early — either before or at the first hint of a possible future unfavorable health diagnosis.  Read below about the result experienced by a family who immediately addressed their patriarch’s early diagnosis of dementia.

The Diagnosis

Jane and Dave were in their early 70’s as the year 2004 began.  Their two sons and all of their grandchildren had celebrated the previous Thanksgiving at the family home.  The only cloud on their horizon was Dave’s declining short-term memory.  Their sons encouraged them to proactively address Dave’s health and its effects on their future. After consulting with Dave’s physician, testing indicated that Dave was beginning to suffer from the early stages of dementia.  The doctor told them that some of the newer medications for dementia are often very effective at slowing the progression of the disease but only if the medications are started early.  By addressing the situation at the earliest possible time, Jane had likely bought several more good years for her husband.

The doctor also wisely suggested to Jane that she consult with an elder law attorney to make sure their estate plans were in order.  At the first meeting with the attorney, they discussed their goals, assets and income.  Their monthly income totaled about $2,400 from pensions and Social Security.  She had an IRA with a balance of  $100,000 and his IRA was worth $60,000.  Their brokerage account contained stocks and bonds totaling $230,000.

A Plan for Security

Jane and Dave wanted to protect their brokerage account since they were not withdrawing principal for living expenses.  They decided to put their brokerage account into an irrevocable trust.  Their sons would serve jointly as Trustee.  Jane and Dave would be entitled to all of the income from the trust for the rest of their lives.  Provisions were added allowing the sons to withdraw principal in the event Jane and Dave needed extra resources and to make sure the assets in the trust would not cause them to be disqualified from receiving Medicaid if one of them had to enter a nursing home.  Although the assets in the trust would not be protected until five years had passed, they believed the drug therapy made possible by Dave’s early diagnosis provided a good chance that their plan would succeed.  They moved the brokerage account assets into the trust right away.

In July of 2008, Dave fell and broke his hip.  Due to Dave’s other health problems, the doctor reluctantly told Jane that Dave would have to enter a nursing home.  At the time Dave fell, his IRA was valued at $40,000 and hers still had a balance of $100,000.  The trust assets had appreciated to $320,000.  She contacted her elder law attorney with this information and the news of Dave’s fall and was informed that the five-year look back period would expire in only eight more months.

at the time Dave fell, his IRA was valued at $40,000 and hers still had a balance of $100,000…

At $4,000 per month the nursing home would be more expensive than she had expected.  She was pleased to find out that Medicare would cover the first three months of Dave’s nursing home expenses.  She would have to use about $20,000 of Dave’s IRA to pay for his care until March.

Her attorney informed her that under Federal law, she would be allowed to segregate $70,000 of their remaining IRA assets to pay for her living expenses in retirement.  Due to some special circumstances, she would also qualify to keep the remaining $30,000 of her IRA and withdraw the remainder of Dave’s IRA in order to generate more income to cover her living expenses.

In summary, because Dave and Jane started planning early, Dave qualified for Medicaid and his wife’s financial security was protected.  With liquid assets of $460,000 on the date of Dave’s fall, all but $20,000 was preserved for Jane’s financial security.  This result was achieved because they started early.  In these uncertain and volatile times, make sure your estate plan address the possibility of long-term health care.  Start planning early.  Jane was glad she did.

This article was written by Craig W. Watson, Attorney