“Planning is bringing the future into the present so that you can do something about it now.”
Alan Lakein, American author and Time Management Expert
We plan to go on vacation. We plan to have dinner with friends. But when it comes to planning for how we will be taken care of as we advance in age, many of us prefer not to think about it, believing it will somehow all work out. Others think it is too late to plan or don’t know who to turn to in order to start planning. Unfortunately, when it comes to long term care planning, including finding the appropriate care and figuring out how to pay for it, those who fail to plan, regardless of the reason, are clearly the ones who risk losing the most.
Consider the two scenarios below that contrast the different outcomes of planning early and choosing the “wait and see” approach for long term care.
Henry is 73 and Sylvia is 70. They have been retired for a number of years and have started traveling a few times a year to visit their children and grandchildren who live in nearby states. During a recent visit, their oldest child asked them whether they had made any plans in the event one of them suddenly got sick. Henry and Sylvia had not thought much about this since both of them were in good health. However, they agreed to seek some advice upon returning home to see what their options were. Henry and Sylvia own a home that they have lived in since their marriage 48 years ago, and they have checking, savings and CD accounts that total $325,000. They both worked most of their adult lives, carefully watching their expenses and never spending money on extravagant items they didn’t feel they needed.
Scenario #1 – Henry and Sylvia planning ahead
Henry and Sylvia spoke with an elder law attorney, as they knew they should update their will and their powers of attorney. While there, they were surprised to learn that they could actually plan now to avoid running out of money in the future should they need long term care either at home or in a facility. With the help of their elder law attorney, they placed $200,000 and their home into an irrevocable trust, and named their children as beneficiaries of the trust. If needed, their children would be able to take a distribution from the irrevocable trust rather than using their own money for Henry and Sylvia’s needs.
The remaining $125,000 would be kept in a revocable trust that Henry and Sylvia would use for their living and travel expenses. Sylvia would apply for a long term care insurance policy to provide further protection for them should her health fail (Henry had applied previously but was denied). The $200,000 placed into the irrevocable trust would not be counted against them after 5 years, should either of them need long term care and the assistance of state benefits to pay for it.
Unfortunately, six years later Henry had a severe stroke and ended up in a nursing home unable to use his right side arm or leg. Sylvia tried caring for him at home but was simply unable to. Sylvia went back to see the elder law attorney for help. Because they had planned ahead and had set up an irrevocable trust.
Sylvia was able to keep most of the remaining cash assets in their revocable trust, and Henry was able to qualify quickly for state Medicaid benefits. The irrevocable trust (which had now grown to $215,000) remained in place but did not count against Henry since more than 5 years had passed and neither Henry nor Sylvia had any direct access to the trust assets. Sylvia was incredibly relieved to know that she did not have to worry about paying for Henry’s care and could instead focus on visiting him and providing as much support as possible to him. Although Sylvia was not able to obtain long term care insurance, she has piece of mind knowing their children continue to manage the irrevocable trust and are ready to help both Sylvia and Henry as needed.
Scenario #2 – Henry and Sylvia without planning ahead
Let’s assume Henry and Sylvia did not plan ahead. When Henry had a stroke at age 78, the couple had $300,000 in checking, savings and CDs. Under the Medicaid regulations in place at the time, Sylvia was able to keep $125,00 of the assets, but most of the remaining assets had to be used for Henry’s care, leaving only $80,000 that was transferred to the children (or to an irrevocable trust) and thus protected from Medicaid. While their home would be protected since Sylvia was still living there, if she were to become ill the home could be subject to a lien by Medicaid.
It took nearly two years to get Henry qualified for Medicaid, and the process was incredibly stressful for Sylvia and her children. Furthermore, no planning has been done for Sylvia and if her health fails, their remaining assets are at risk.
What If Henry Was Not Married?
Let’s assume Henry was not married, but had the same assets. If Henry planned early, all of the assets he put into an irrevocable trust (including his home) would be protected. However, if Henry did not plan early then he would likely have less than $50,000 to preserve and it may be nothing at all. This could also require the creation of a Guardianship.
The scenarios above have highlighted the importance of seniors and their loved ones planning early for the possibility of needing long term care. There are not only financial benefits to doing so, but also numerous non-financial benefits, including reduced stress on the family and peace of mind knowing that the family’s needs are taken care of regardless of any health care crisis that may occur.
Our law firm helps families plan for their long term care needs, whether it is years in advance or after a health care crisis has occurred. We would be honored to work with you and your family to create a plan that works for you. Click here to request an appointment with one of our attorneys.
About The Author: Richard Chamberlain
More posts by Richard Chamberlain