I start any discussion of estate planning by emphasizing that it is just as much about planning for the possibility of your incapacity as it is the certainty of your death. When it comes to planning for incapacity, I like to divide this into three categories: (1) what are your goals; (2) what tools do you need to accomplish your goals; and (3) how are you going to pay for the cost of achieving those goals?
Conversations about long term care are some of the most challenging discussions I have with my clients. The goal many of my clients have of staying out of a nursing home at all costs can be at odds with the goal of protecting assets for those they leave behind. Planning for possibility – and cost – of long term care is crucial. At Clarity Legal Group, I encourage clients to take these five steps to prepare for these challenging conversations:
- Evaluate your health. Although most people cannot predict the need for long-term care (LTC), evaluating your state of your health now may be helpful when creating a LTC plan. This is particularly true if you have any chronic conditions and/or a family history of serious health conditions. For example, if you already have diabetes or high blood pressure, or there is a strong family history of heart disease, it is logical to predict that you have a higher likelihood of needing LTC down the road. Those same health conditions could cause your insurance premiums to increase dramatically as you age.
- Research LTC options and costs. While around the clock care in a nursing home is certainly one type of LTC, it is not the only type. Other options may include assisted living, community care, home health aides, and even family caregivers. Planning for LTC requires you to have some idea of what that care will cost. Nationwide, the average cost of a year in LTC for 2020 was over $100,000.
- Review insurance options. You will likely depend on Medicare to cover the majority of your health care costs. What you may not know is that Medicare will not cover your LTC expenses. Neither will most private health insurance policies. A separate LTC policy is an option; however, the premiums may be high and anyone who tells you that it is easy to understand what these policies covers and what they do not is pulling your leg.
- Put together a hypothetical budget. Put together a rough budget assessing costs of living for you and your spouse if you are married. Add a generous estimate of the cost of in home or institutional skilled nursing care. Define your income from sources such as Social Security, pensions, required minimum distributions from retirement accounts, and interest and dividends. What is the gap between these sources of cash flow and the monthly or annual costs? Understanding the gap, calculate how much of your savings will be lost due to three, five and seven years of these expenses. Will you run out of money? What will the impact be for support of those you rely on you? What will be the impact of any inheritance you might leave to family?
- Meet with your Estate Planning or Elder Law Attorney. Experienced attorneys can not only lead this discussion, but let you know what tools you need in order to meeting your goals. You will need long term care specific elements implemented in legal documents such as Powers of Attorney, Living Trusts, and Health Care Powers of Attorney. IF you choose, implementation of an asset protection plan may be a key element of long term care planning.
- Discuss options with family members. Understandably, most people would prefer to age in place and not have to be moved to an LTC facility. Likewise, when you are older you would probably prefer a family member to care of you instead of a nurse. Before you assume that your family members are willing to help though, sit down and have a very honest discussion. If you have four children who all live close and each has room for you, the need to move to an LTC facility may lower in your case. On the other hand, if three of those four children are scattered around the globe, and the fourth does not appear to be willing/able to provide care, you may wish to focus more on planning for LTC.
- Incorporate Medicaid planning into your estate plan. The good news when it comes to long-term care planning is that Medicaid does cover LTC expenses. The bad news is that failing to plan ahead could put your assets at risk and/or result in your application for Medicaid being denied. Medicaid uses both income and asset limits when evaluating an application. If you own non-exempt assets valued above the limit, you may be forced to sell those assets (“spend-down”) and use the proceeds to pay your LTC costs. Only when those proceeds are gone will you qualify for Medicaid. Many people are unaware that purchasing long term care insurance does not eliminate the need for Medicaid planning, but may actually be part of this approach. Planning ahead, by incorporating Medicaid planning into your comprehensive estate plan can protect your hard-earned assets and set you up to be eligible for Medicaid if you need the benefits offered by the program in the future.
Contact a Chapel Hill Durham area Estate Planning Attorney
If you have additional questions or concerns regarding the need for long-term care planning, please contact a Raleigh, Durham, Chapel Hill estate planning attorney at Clarity Legal Group by calling us at 919-484-0012 or contact us online.