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Planning for Long Term Care
Studies predict that approximately 40% (2 out of every 5) of Americans reaching age 65 will need some type of long-term care (LTC). Some of your clients would prefer to stay at home, no matter what the cost. However, without proper planning, the lack of available services and the staggering price tag for full-time home health care may leave them without that option.
Medicare - Don’t Count on It for Long-Term Care
Many seniors think that Medicare will pay for LTC if they need it. That is simply not true. Medicare coverage is limited to: qualified medical expenses (80% of an approved amount for doctors, surgical services, etc.); hospitalization for 90 days per benefit period with a total deductible of $1,024.00 for the first 60 days and a co-payment of $256.00 per day for the remaining 30 days, and an additional one-time, lifetime benefit of 60 days of hospitalization, with a co-payment of $512.00 per day (for a maximum of 150 days).
Medicare only pays for a limited period of “skilled” nursing home care that begins within 30 days following a hospital stay of at least 3 days. The maximum period is 100 days per benefit period. “Skilled” care is that provided under the supervision of a doctor that requires the services of skilled professionals, such as physical therapists or registered nurses. Medicare never pays for any “custodial care,” which is basic personal care and other maintenance-level services. If the patient is eligible, Medicare will pay 100% of the costs for up to 20 days of skilled nursing home care. If the patient is eligible, from day 21 through day 100, the patient has a $128.00 per day co-payment. If a patient stops needing skilled nursing home care, the patient ceases to be eligible and Medicare stops paying. Home health care may be available in limited amounts, but only if “medically necessary.”
For all Medicare benefits there are deductibles and co-payments, which can be substantial. Lifetime limits can be reached in the case of catastrophic illness. Plus, as the cost of Medicare rises, so does the pressure on the government to make it “means tested” instead of a universal program. There are excellent private “Medigap” insurance policies available to cover the gap between Medicare coverage and actual cost.
Planning Tip: Seniors need to understand Medicare’s limitations. It does not cover hospital costs beyond 150 days, skilled nursing home costs beyond 100 days, or any custodial nursing home or non-skilled home health care.
Planning Tip: Those eligible for Medicare should be encouraged to buy “Medigap” insurance. However, seniors need to understand that Medigap insurance does not cover LTC that Medicare does not partially pay for.
Self-Insuring LTC Costs
Self-insuring for possible LTC expenses requires a close collaboration of financial planning and estate and tax planning professionals to ensure that there are sufficient assets available to cover possible costs for as long as needed. The collaboration requires a comprehensive look at the overall financial condition of the client, as well as a thorough understanding of the client’s health and wishes regarding care in the event of incapacity.
Planning Tip: Use a thorough fact-finding questionnaire to assemble all the information needed for the analysis. This will include client assets, current and anticipated income and expenses, and other data, such as where care will occur, the level of support available from family caregivers, and any family history of incapacity. This information will provide the foundation for the planning required to maximize the value of Social Security income, fixed pensions, dividend, interest, and other income streams, along with maximizing tax deductions for things such as medical expenses.
Planning Tip: For LTC self insurance to work, the client needs a qualified financial planner whose investment strategies will produce asset growth and income sufficient to fund the client’s projected LTC expenses. Armed with knowledge of the client’s assets and projections for income and expenses, the client’s advisors can assess the client’s ability to implement a plan to self-insure LTC and recommend an appropriate investment strategy.
LTC Insurance
Most clients will not be able to fully self-insure for LTC, given the current and projected costs of LTC. Those who cannot but are insurable and can afford the premiums should integrate an LTC policy into their comprehensive wealth plan. Doing so can obviate the need for Medicaid planning later.
Planning Tip: The two types of LTC policies available are cash payment and reimbursement. The former pays cash to the insured. The latter reimburses the insured for actual costs incurred.
Planning Tip: Policy benefits to look for in an LTC insurance policy include: nursing home and home care coverage; sufficient daily payouts ($200.00/day is a good start); elimination periods (the number of days you must be in the nursing home before benefits begin, typically 0 to 100 days); duration of benefits (3 years, 5 years, lifetime); renewability (make sure it is guaranteed renewable); waiver of premiums (insured pays no premiums while receiving benefits); and inflation protection. As with life insurance, the older an applicant, the more difficult it is to obtain insurance and the higher the premium for equivalent coverage.
LTC Advanced Planning Strategies
If total LTC self and/or third-party insurance are not options, other options may be considered.
The Medicaid Trust
One currently-effective planning technique is to transfer assets into a “Medicaid” trust. In a Medicaid trust, the trust maker retains the right to all of the trust income for life while irrevocably giving up the right to receive or benefit from any of the trust principal. The assets in the trust are not available to pay for the cost of the trust maker’s LTC.
Planning Tip: Retaining the right to receive the trust income keeps the trust assets in the trust maker’s estate for estate tax purposes, thereby giving a basis adjustment at death which wipes out any unrecognized capital gain or loss on the trust assets.
By using a Medicaid trust, a senior can preserve capital and still qualify for Medicaid, but only after expiration of the look-back period for the transfer to the trust (which can be as much as 60 months (5 years)).
Planning Tip: The “penalty period” starts from the date the applicant applies for Medicaid and would be eligible but for the disqualifying transfer. Its length is determined by dividing the state’s average daily private pay nursing home cost into the total of the transfers made during the look-back period.
Planning Tip: For the Medicaid trust strategy to work, insurance, an income stream, or other assets must be sufficient to pay for LTC if needed during the waiting period before applying for Medicaid.
A Medicaid trust can allow the trustee to distribute principal during the trust maker’s lifetime for the benefit of the trust maker’s spouse, children, or other designated beneficiaries, just not to or for the benefit of the trust maker. Many trust makers choose to maintain the right (called a Special Power of Appointment) to change the current or ultimate beneficiaries of the Medicaid trust by “reappointing” the assets to different family members at a later date.
Planning Tip: Retaining a Special Power of Appointment prevents the trust maker’s contributions to the trust from being taxable completed gifts at the time of contribution. A distribution of trust principal to a beneficiary during the trust maker’s life is a completed gift.
Making Gifts
If a Medicaid trust is not desired, it is still possible to make “outright” gifts of property, wait until the look-back period expires, and then apply for Medicaid or use other planning techniques to qualify for Medicaid at the earliest possible date.
Protecting the Home
If the home is the only asset to protect, a deed to children or others with a retained life estate for the client will protect both the property and the client’s Medicaid eligibility upon expiration of either 60 months from the date of the conveyance or the applicable “penalty period.” As with other advanced planning strategies, because the penalty period begins only after the applicant has applied for Medicaid and is otherwise eligible, the client must have other LTC funding available to get past the look-back period, or someone willing and able to pick up the LTC costs during the penalty period.
Planning Tip: If the home is sold while the client is receiving LTC under Medicaid, a portion of the sale proceeds equivalent to the value of the life estate (using Medicaid tables that give a higher value than an IRS life expectancy table) will have to be paid to the nursing home unless protected using other Medicaid planning strategies.
Crisis LTC Planning
Even if the need for LTC is imminent or immediate, sophisticated Medicaid planning opportunities can be employed to protect a substantial portion of the client’s assets. Carefully working within the Medicaid transfer rules can allow clients to provide security for themselves and a legacy to their families, while ensuring that they will remain eligible to receive LTC under Medicaid when necessary. For example, by combining the gifting of assets with the structuring of other asset transfers as an exchange for a secured interest (much like a loan) through the use of a promissory note, private annuity, or Grantor Retained Annuity Trust (GRAT), clients can pay for expenses during the waiting period that begins upon making the gifts. This allows them to channel assets to a trust, or to children and grandchildren, while receiving sufficient income through the note or annuity payments to pay for their care until they become Medicaid eligible.
If the client can live at home with the assistance of home health care, one can transfer assets and qualify for Medicaid immediately to cover home care costs in some jurisdictions. The planning team must exercise caution, however, because home health care may be appropriate initially, but if the client’s condition deteriorates to the point where he or she cannot safely stay at home, nursing home placement may be required. If the client requires this higher level of LTC, he or she must file a new application, and the Medicaid transfer rules will then apply. Thus, when planning for home care, the client and planning team must evaluate the possible need for institutional LTC services before making transfers.
Planning Tip: Moving in with a relative or family member may be another option for seniors. It may also be advisable for the client to put in place a caregiver agreement and/or personal service contract to make a transfer to a family member as compensation for their providing home care services.
Conclusion
Counseling clients on their LTC options, including the availability of LTC insurance, is an integral part of comprehensive wealth planning. By working together, the planning team can ensure that assets are available as needed to meet each client’s unique LTC planning goals and objectives.
5 Steps to Realizing Your Financial Dreams Before Retirement
This week we have a guest author, my own Personal Power Mentor, Cookie Tuminello. Enjoy!
- Myrna
Quote: “All of our dreams can come true - if we have the courage to pursue them.” - Walt Disney
For the past 10 weeks, Myrna has been sharing with you her “10 Keys To Financial Peace.” She has done an excellent job of educating you on the LA Estate Planning laws and how you can achieve your financial dreams. The way I see it, you have two choices - You can store this information in some folder and pull a Scarlet O’Hara from Gone With the Wind and say, “I’ll just think about that tomorrow”, or you can take action NOW to create the life you want and deserve for you and your family. Sounds like a no brainer to me!
Pay attention Baby Boomers! Everybody has a dream for their life. The trouble is most of us so busy doing ‘Life 101’ that we don’t take the time to get clear about what we really want in our life. Consequently we don’t ever achieve the success we crave. Then to make matters worse, we are unwilling to make the changes necessary to turn our dreams into reality. We say “I’ve got plenty of time; I’ll do that when the children leave home; I’ll be able to work on that when the mortgage (car, credit card debt, etc.) is paid off; I plan on making those changes when I turn 35, 40, 50” and so on! Blah, Blah, Blah. The trouble is that certain ‘Someday’ never comes, or one day you get a wake up call that shocks you into reality and action. This is what happened to me. One day I was blissfully married and the next I was widow at 36 with two children. Luckily for me, my husband and I both believed in the importance of estate planning and having the ‘what if’ conversations. Now this did not minimize my grief, but I was better prepared to take the action I knew I needed to take.
It is true that dreams never die, but they can wind up fading into the woodwork of our lives if they aren’t cultivated and nurtured into reality. Just as a houseplant needs to be watered and fertilized on a weekly basis, so do our dreams. By shoving our dreams into that ‘Someday’ file in our mind, we run the very real risk of having that ‘Someday’ never come. We let our fears – fear of the unknown and the very real fear of change – get in the way of our taking action. And then we believe that we are powerless to change ANYTHING.
Remember - courage is taking action in the face of fear. You will never know what you’re capable of until you take this first step and just make a decision to do something – anything – to propel you towards your dream.
Think about this for a moment – how far are you actually willing to go to have the life (and dreams) that you want and deserve? What are you willing to change in your life to put the wheels in motion to turn your hopes and aspirations into reality?
Here are 6 Steps to get your started on your journey to making your financial dreams, financial realities:
1. Ask yourself this – What do I really want to be, do, or have?
You can’t get anywhere until you know where you’re going. It’s your life – your choice. Write it down, make it real. The clearer your ‘wish list’ is, the better your Financial Planner will be able to help you achieve it.
2. Is this dream in keeping with my core values?
Core values help you define what matters most to you in life and are the basis for making better choices for yourself. When you use your core values to make your decisions, you are less likely to second guess yourself.
3. What are the action steps I need to take to achieve this dream?
If your dream is to have financial freedom at retirement, then you know the first step you’ll need to take is to examine your spending habits. If you are not committed to putting a portion of your earnings into savings or a 401K, then chances are you won’t achieve your dream. Be realistic so you don’t sabotage yourself.4. Choose a time frame for your action steps.
4. How do you eat an elephant?
One bite at a time. That’s how you are going to achieve your financial dreams. Be realistic. Setting a target date keeps you honest with yourself. It also helps your Financial Planner set up a plan that works for you so that you’ll achieve your dreams… one dollar at a time.
5. What kind of support can I expect from my Financial Planner? What requests will I need to make?
The clearer you are about your current financial status and your aspirations for retirement, the better your Financial Planner will be able to help you get there. If you don’t ask, you don’t get – plain and simple.
6. How will I feel when I achieve this dream?
By concentrating on the end result as if you’ve already achieved it, you’re sending out positive vibrations into the universe which will help you in your quest to manifesting your dreams. In your mind, picture your life as it will be once you’ve obtained your desires. Imagine it, feel it, taste and/or smell the success. By believing you’re already at the finish line, getting there will be much easier.
So go ahead. Dream your dreams and reach for the stars. Your ideal life is waiting for you. Let go and give yourself the gift of a life well planned and well lived.
- Cookie Tuminello, Success Source
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When a Loved One Dies in Louisiana - What To Expect
The death of a loved one can be a very difficult and emotional time. I have developed this information to provide you (and other survivors) with some idea of what normally must be done to administer an estate in
Immediate Concerns. (Immediate concerns typically relate to arranging Funeral or Memorial Services and determining the immediate needs of the survivors.)
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Arrange for care of minors or family members who are unable to care for themselves
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Arrange for Funeral and/or Memorial Services
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Arrange for care of pets or farm animals
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Determine the immediate needs of survivors such as cash needs
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Stop the mail, newspapers and other deliveries as appropriate
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Locate and provide safekeeping for business and personal assets
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Locate and provide safekeeping for documents and records
Starting the Probate or Succession Proceeding. (Probate is the legal name of the process of transferring property – the “estate” – from a person who has passed away to the beneficiaries named in his or her Will. Succession is the legal term used for this process if the person who passed away did not leave a will.)
Obtain Affidavits of Death and Heirship
Prepare and file the Petition for Probate or Open Succession
Determine the need for Ancillary Probate (for out of state property)
Prepare and file an Descriptive List of Estate Assets
Determine the Need for Inheritance Tax or Federal Estate Tax Returns
Obtain Judgment of Possession
Distribute Assets
Special Announcement for Subscribers of Weekly Wealth Tips
Many of you subscribe to my ezine, Weekly Wealth Tips, and perhaps you have noticed its absence these last few weeks.
I have launched a new website, www.LouisianaWealthPlanning.com, which I encourage you to visit. Due to this new website, I have changed the name of my weekly ezine to Louisiana Wealth Planning News. Because I am now using a blog format, it will make it easy for you to search past issues and find tons of information to answer all of your estate planning questions. As always, I welcome your questions and comments. If you are not a current subscriber, please use the form on this page to subscribe and you will receive an email whenever I post new information to the blog.
I am working on a lot of great initiatives to help you and your family plan for the future, which I will be announcing over the next few weeks, so please stay tuned to more news and information designed to keep you and your family informed of all the latest estate planning news of interest to Louisiana families.