Ensuring your loved ones inherit part of your estate even if you need long-term care (nursing home, round-the-clock home care, etc.) is important to many of my clients. But how are you able to preserve assets in the face of nursing homes and Medicaid spenddown regulations? You might consider adding a Medicaid Trust to your estate plan.
You may be reading and thinking to yourself, “What’s the difference between Medicare and Medicaid?” It can be confusing to a lot of us, so you’re not alone. They are two completely different programs, and the one most folks know more about—Medicare—does not cover long-term care costs beyond a couple of months. Medicaid covers long-term care costs, but only once you have essentially run out of money (there are certain assets, like a primary residence, excluded from this formula).
If you plan well enough in advance, you can shield some of your assets from being spent on long-term care. It is worth noting that nursing homes in this area cost $150,000/year for most folks now, meaning you will spend down your assets quickly once long-term care is involved. Only after all your assets are spent will you be able to apply for Medicaid. Maneuvering around the long-term facilities and Medicaid will make sure your loved ones get at least a portion of your estate, no matter what happens.
There are several options for protecting your estate from long-term care costs, including traditional long-term care insurance, life insurance with long-term care riders, continuing care retirement communities (CCRC), and the Medicaid Trust.
A Medicaid Trust is a great tool to protect certain assets in your estate. Think of the trust like a box with a shield, protecting what you put into it from nursing home spend-down. Ideal assets for this trust are secondary properties or money that you have already earmarked for your loved ones to inherit—assets that are not critical to your day-to-day life. You never want to put everything you own into this type of trust. However, it can work really well for part of your estate, ensuring your heirs inherit something regardless of how much long-term care ends up costing you.
There are many factors at play to determine if this type of trust makes sense for a client. The most important factors are age, health, and time—with Medicaid’s five-year lookback constantly looming, you can’t do this type of planning at the last minute, right before you need long-term care. Another factor is whether you have adequate assets in the first place to utilize this type of trust. Because you are protecting only the assets that are not critical to your daily life, not everyone will meet the criteria to utilize a Medicaid Trust.
Is the Medicaid Trust a viable planning tool for you? The only way to find out is to schedule a meeting with me. Perhaps there are other/better options for us to plan against long-term care costs. The single most important aspect of long-term care planning is to plan ahead.
If you’re concerned about nursing home costs and how that could impact your estate, please schedule a complimentary visit with me by calling 215-706-0200.