Contents
Estate Planning Basics
How Estate Taxes Work
Wills and Estate Planning
How to Write a Will
Planning Directives
Probate
Estate Planning and Trusts
Types of Trusts
Life Insurance
Charitable Giving
General Gifting
Long-Term Care Planning
Business Succession Planning
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Long-Term Care Planning
Half or more of all people aged 65 or over will need some form of long-term care (LTC), such as an extended stay in a nursing home or medical facility. The costs for extended LTC can severely deplete the value of an estate, so LTC planning must be a core part of all estate planning.
Long-Term Care Costs
According to AARP statistics, in the early 2000s the average cost for full-time LTC at a private facility was about $65,000 per year but was much higher in urban areas and high-cost states such as New York and Alaska. Costs for at-home care average about 50–75% of facility-based LTC.
LTC costs have risen much faster than inflation and
Social Security payments, so you must plan for LTC costs now. There are four main ways to cover LTC costs:
- LTC insurance policy payouts
- Medicaid
- Liquidation of assets in your estate
- Relatives’ money
Your main concern in planning how to fund your long-term care should be to avoid depleting the value of your estate. The estate you’ve amassed over a lifetime of work, savings, and investment can easily be consumed by a few uninsured years spent in a nursing home. Long-term care insurance is the most effective way to prevent squandering your savings and your estate in your final years.
Long-Term Care Insurance
Long-term care insurance can cover a wide variety of situations—from nursing home care and group care in a dementia facility to home health care, assisted living, adult day care, and respite care. The most common features of LTC insurance policies include:
- Cost-of-living adjustment (simple or compounded)
- Daily benefit amounts of $100–300
- Nursing home and home health care (since most people wish to stay in their homes)
- Third-party notification should the insured miss a payment
- Two-, three-, four-, five-, or six-year, or lifetime benefits
- Waiting periods of 0–365 days; in order to be tax-qualified (meaning the benefits are not taxable), the wait for benefits to start needs to be at least 90 days
- Discounts of 10–40% for policies bought jointly with a spouse or other family member
LTC insurance can be expensive, and costs range widely depending on location. It might cost a few hundred dollars a year for a nursing home–only plan in a rural area or up to $10,000 a year or more in New York City or Alaska for a policy with all the perks.
It’s best to look for LTC insurance while in your 50s or early 60s. After that, the premium costs are often too high and qualification standards too stringent. Check to see
whether you’re eligible for a plan through your workplace. These plans are usually easier to qualify for and less
expensive than plans you obtain on your own. Note that LTC premiums are not fixed and often rise substantially as you age. Even so, they cost less than an uninsured year in a nursing home.
Medicaid Planning
Medicaid is a federal government–backed plan intended to pay medical costs for low-income families and individuals. It’s possible to qualify for Medicaid by transferring assets to certain irrevocable trusts, such as an irrevocable income-only trust. This strategy is referred to as Medicaid planning, and there is an entire field of the law that specializes in helping people intentionally “impoverish” themselves to qualify for Medicaid-funded LTC.
If you plan to attempt this trust-based Medicaid planning strategy rather than pay outright for LTC insurance, keep the following points in mind:
- The trusts you’ll need to establish are almost always irrevocable, meaning that assets placed in them cannot be taken back out.
- The LTC facilities that accept Medicaid may be less appealing to you than private facilities that would accept your LTC insurance.
- Your state’s Medicaid plan may not cover in-home care, adult day care, or other less traditional forms of LTC. Medicaid may require you to enter a nursing home even if you don’t need full-time care.
- To determine whether you qualify for Medicaid, the government uses a three- to five-year look-back period. Medicaid will examine your financial situation as far back as five years to see whether you truly deserve Medicaid coverage. If they deny you coverage, you’ll have to fund your LTC another way, either permanently or until you convince Medicaid that you merit coverage.
In short, Medicaid planning involves complicated legal, ethical, and personal decisions. Consult with tax and legal advisors to determine whether Medicaid planning makes sense for you.
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