When most people consider estate planning, they think about how their assets will be distributed to their loved ones. While this is certainly a major aspect of the estate planning process, it isn’t the only aspect that needs to be considered. For example, you should also have a plan in place for someone to make important healthcare and financial decisions on your behalf in the event that you become incapacitated and are unable to make those decisions for yourself.
Another major part of estate planning is accounting for potential long-term care needs. This is important given that studies have shown that about 70% of people will require long-term care at some point in their lives, and the average costs of that care can be significant. In fact, the average monthly expense for a nursing home stay in a semi-private room is more than $8,000. Doing the math, a nursing home stay can quickly erode your wealth, leaving you with little to pass down to your loved ones.
Are there options for effectively planning for long-term care?
Yes. Although some people can rely on a long-term care insurance policy or simply pay out of pocket for their care, those options are unrealistic for a lot of people. If that’s true for you, then you may want to start thinking about Medicaid planning. Here, you seek to reduce your assets and your income so that you qualify for Medicaid, which means that the government will cover a significant portion of your long-term care costs.
But there are important points to keep in mind as you consider Medicaid planning. They include:
- The Medicaid lookback period: To meet eligibility requirements, you may have to get rid of a lot of your assets in one way or another. But you’ll have to do so well ahead of your anticipated care. Under Medicaid’s rules, you can be penalized if it’s discovered that you transferred assets within five years of your Medicaid application, which could hinder your ability to receive the assistance needed.
- There are ways to protect your assets: A lot of people who hear about Medicaid planning worry about what they perceive as placing themselves in financial hardship. While it’s true that you’ll likely have to lose ownership of some of your assets, there are ways to shield others. For example, money spent to renovate your home may not count for the lookback period and can be an effective way to spend down your assets while building equity that will eventually be passed down to your loved ones. You can also spend down your assets by prepaying for your funeral and burial expenses, paying down debt and making exempt purchases, which may include a vehicle for your spouse.
- An annuity can protect your spouse: With an annuity, you pay a lump sum in exchange for regular payments. This can provide stability to your spouse while you receive long-term care. An annuity also helps you effectively spend down your assets to ensure that you meet eligibility requirements. Here, you’ll just want to ensure that the annuity in question meets Medicaid’s requirements so that you don’t end up penalized.
Create the holistic estate plan that you need
There’s a lot that can go into the estate planning process. If you want to protect your interests and your assets as fully as possible, then you have to know your estate planning options and how to effectively use them.
