Long Term Care (LTC) planning is an important part of estate and financial planning. We never know for sure if we will need long-term care. Even if these plans are made, many families will never need to use their long term care plans. However, an accident, illness, Alzheimer’s disease, or an injury can change our financial needs, and sometimes very suddenly. The best time to think about long-term care is before it is needed. While Medicare and Medicaid will pay for some long term care services these programs do not pay for every cost, and these are government plans which provide many restrictions for payment. Assuring you have your own long-term care plan in place is the only way you can direct the care that you will receive when it is needed. A discussion about Long Term Care planning should be a part of every estate planning process. Below are some terms you should be aware of.
Long Term Care Insurance
Long Term Care Insurance is the insurance that covers families for long-term care if it is needed. These policies have received some bad press of late, some deserved but mostly not. A Long-Term Care policy can be a life-saving tool for many people. There is a misperception that these policies may only be used to pay for nursing home expenses. Since nobody wants to end up in a nursing home, the thought is that nobody should pay for long-term care insurance. But this is far from the truth. Long-term care policies can be structured so that they provide coverage for assistance with every day living BEFORE 24-hour care is needed. There are many occasions where assistance might be required that do not involve 24-hour care. These occasions could require “assistance with daily living” (known as ADL’s) such as showering, bathing, dressing or even meals. These LTC policies can also provide money for relatives to provide such care. An LTC policy properly structured by a licensed professional such as Grace St. Clair, can be a life-saver as an adult matures in age. Since the pricing of LTC policies increases with age, the implementation of such a policy should be considered when the estate planning process begins.
Without funds or insurance to fund one’s long-term care needs, these other planning methods can be effective:
The Medicaid Trust
One currently-effective planning technique is to transfer assets into a ‘Medicaid’ Trust. In a Medicaid Trust, the Trust maker retains the right to all of the Trust income for life, while irrevocably giving up the right to receive or benefit from any of the Trust principal. The assets in the Trust are not available to pay for the cost of the trust maker’s Long Term Care (LTC).
By using a Medicaid Trust, a senior can preserve capital and still qualify for Medicaid, but only after expiration of the look-back period for the transfer to the Trust (which can be as much as 60 months or 5 years). The ‘penalty period’ starts from the date the applicant applies for Medicaid and would be eligible, but for the disqualifying transfer. Its length is determined by dividing the state’s average daily private pay nursing home cost into the total of the transfers made during the look-back period.
For the Medicaid Trust strategy to work, insurance, an income stream, or other assets must be sufficient to pay for LTC if needed during the waiting period before applying for Medicaid.
A Medicaid Trust can allow the trustee to distribute principal during the Trust maker’s lifetime for the benefit of the trust maker’s spouse, children, or other designated beneficiaries, just not to or for the benefit of the Trust maker. Many Trust makers choose to maintain the right (called a Special Power of Appointment) to change the current or ultimate beneficiaries of the Medicaid Trust by ‘reappointing’ the assets to different family members at a later date.
If a Medicaid Trust is not desired, it is still possible to make ‘outright’ gifts of property, wait until the look-back period expires, and then apply for Medicaid or use other planning techniques to qualify for Medicaid at the earliest possible date.
Protecting the Home
If the home is the only asset to protect, a deed to children or others with a retained life estate for the client will protect both the property and the client’s Medicaid eligibility upon expiration of either 60 months from the date of the conveyance or the applicable ‘penalty period.’ As with other advanced planning strategies, because the penalty period begins only after the applicant has applied for Medicaid and is otherwise eligible, other LTC funding should be available to get past the look-back period.
Even if the need for LTC is imminent or immediate, sophisticated Medicaid planning opportunities can be employed to protect a substantial portion of your assets. Carefully working within the Medicaid transfer rules can allow individuals to provide security for themselves and a legacy to their families, while ensuring that they will remain eligible to receive LTC under Medicaid when necessary.
Other Financial Choices Are Available
Grace is experienced in advising families about LTC planning and there are often other financial choices available to families that are less onerous than creating trusts to protect assets such as reverse mortgages. A discussion about LTC Planning should be a part of every estate planning process.
Counseling individuals on their Long Term Care options, including the availability of Long Term Care insurance, is an integral part of comprehensive wealth planning.