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Why You Need to Plan Early for Long-Term Care

According to the U.S. Department of Health and Human Services, at least 70 percent of people over age 65 will require some long-term care services at some point in their lives. Care expenses are high.  According to Genworth Financial, the average cost of a room in a nursing home in 2019 in the State of Indiana was $93,226.50 a year and home care aides averaged $21 per hour.

Thinking about a time when you will need help taking care of yourself is not fun. That is why most people put off discussing long-term care until it can’t be ignored. But it is better to start long-term care planning early.

Among other advantages, planning ahead may enable you to preserve more of your assets instead of using all or a significant portion of them for long-term care, particularly if public benefits will be a primary source of financing your long-term care.  Take for example, two families of similar means, one who plans early and the other who waits until long-term care is needed to plan.

Asset Family 1 Family 2
House $150,000 $150,000
Bank Accounts $100,000 $100,000
Retirement Accounts $100,000 $100,000
Total: $350,000 $350,000

Family 1 plans well before the need for long-term care.  They place their house and a majority of the cash in their bank accounts in an Irrevocable Family Trust.  They also start to make more than their Required Minimum Distributions from their retirement accounts and place what they don’t need in a joint brokerage account.  As a result, when they need long-term care six years later, $250,000 (the house and bank accounts) are protected.  They can gift a portion of their remaining assets or invest in assets that are exempt under the Medicaid and Department of Veterans Affairs (VA) pension programs to meet eligibility criteria.  The end result is that they have protected at least $300,000 of their assets (if not more) and are eligible for long term care assistance from VA pension and/or Medicaid.

Family 2, on the other hand, waits until there is an immediate need for care before starting their long-term care planning.  Because both VA pension and Medicaid have rules against making transfers to meet eligibility limits, Family 2 will have to wait a period of time before qualifying for public benefits (the penalty period).  Because Family 2 needs care while serving a penalty, they must use a portion of their assets to pay for care through the penalty period.  The end result is that Family 2 protects about $175,000 and has to wait 26 months for Medicaid assistance or 36 months for VA pension assistance.

While these are two very simplified examples, they illustrate a concept we often discuss with clients. While we can still protect assets in a crisis, delaying planning until an immediate need for long-term care can cost half of what you own.  But that is not all.  Planning early also ensures that those individuals you want handling your affairs in a crisis have the instruction and authority they need to plan for you.  You can also have more control over what type of care you receive-whether it’s compensated or uncompensated family caregivers, third party provided home care, adult day care, assisted living, or nursing home care.  You can also review alternatives to public benefits, such as long term care insurance.  To start your estate plan for long term care, contact us today.