Don’t Forget Long-Term Care Costs When Planning Your Estate

When discussing estate planning with clients or potential clients, the meeting usually begins with questions about who will receive property, who will make medical and/or financial decisions upon incapacity, and how to minimize taxes  and the costs of estate administration.  Most individuals tend to shy away from discussing how to pay for long-term care or nursing home expenses as it is not easy to talk about the unpleasant thought of needing nursing home care.  No one wants to go into a nursing home. I believe many families are sincere when they say they will not let mom or dad go into a nursing facility or they will care for them at home.  Sometimes, however, it is just not safe for someone to remain at home and skilled nursing care is the only option.

Long-term care expenses can cost six figures annually in some states, and generally speaking are not covered by Medicare or your private health insurance policy. Although there are several strategies to protect your assets in the event you require long-term medical care, we will focus on two of the more common financial and legal strategies for this article.

Long-Term Care Insurance

Long-term care insurance policies should be considered as an option to pay for long-term care in the event care is needed.  There are different options for coverage, so discussing your needs with a qualified insurance representative and elder law attorney is very important to ensure you are protected.

Irrevocable Trust

Asset protection using an irrevocable trust is another option to protecting your assets from estate recovery should you need long-term care. Because of the 5-year look-back period rules involving trusts, this type of planning must be done at least five years before the need for long-term care and the filing of a Medicaid/MassHealth application. A consultation with a qualified estate planning and elder law attorney is highly recommended if considering an irrevocable trust strategy.

As discussed above, we discussed only two strategies for purposes of this article. Each family’s situation should be discussed on a case-by-case basis to determine what strategies are appropriate.  Many different factors such as health, family dynamic, assets/income, and whether we are working with a spousal couple or single/surviving spouse are a few examples of the factors we must evaluate to determine what options our families have.  Please call our office to schedule a consultation to discuss what’s best for your family.

Protecting Your Home From The Costs Of Long-Term Care

There are several planning options when it comes to protecting assets from the rising costs of long-term care.  For purposes of this article, we will focus on the use of an irrevocable trust to protect the home and other assets and whether it is still a viable option.  If you have started to think about, or are concerned about, the potential costs of long-term care, for yourself or an aging parent, you may want to investigate all options regarding advanced planning to protect your family’s financial and estate plan.

When someone requires skilled nursing or rehabilitation care, the first question usually asked is, “who is going to pay for this care?”  Medicare may cover costs at the onset of care, but only for a limited time.  If continuous care is needed, your options include privately paying out of your own funds, or applying for Medicaid benefits.  Applying for Medicaid comes with strict asset and income eligibility requirements.

Medicaid, administered in Massachusetts by MassHealth, is a joint federal and state program for impoverished people to cover the costs of long-term care.  As noted above, MassHealth has strict asset and income limits when determining eligibility. The rules also change depending on whether you are applying as a single individual/surviving spouse or as part of a spousal couple. This will have a direct impact on how your home will be viewed as part of your asset limit and potential estate recovery lien.

Generally speaking, an applicant can have no more than $2,000 of countable assets.  There are additional asset and income rules if there is a spouse living in the primary residence which are beyond the scope of this article.

Although there are several options to consider when discussing advanced planning for asset protection, we will be focusing on the use of an irrevocable trust as a strategy to protect assets from the costs of long-term care. These assets include real estate, investments, rental property and other liquid assets. Transferring your home or other assets to an irrevocable trust has advantages and disadvantages.  With a properly drafted trust, assets owned by the trust would avoid estate recovery following the five year look back period.  The transfer of assets to an irrevocable trust will provide protection from the grantor’s creditors as well as the children’s creditors.   There are also tax benefits that you retain by using an irrevocable trust that may not be available with outright transfers to children.

Although there are several reasons to consider asset protection planning, careful thought must be taken before utilizing this strategy.  As this is an irrevocable trust, control and management of trust assets is held by the trustee, which we recommend is not the grantor.  As a result, you will not enjoy the same control you have over assets as if the asset were owned and held outside of trust.  In addition, MassHealth may question and challenge the trust, therefore, we must ensure no more control is given then allowed. Tax benefits and ramifications must also be considered.

As this is a very specialized area of the law, it is highly recommended that you consult with a qualified estate planning and/or elder law attorney to discuss your personal situation.