Many people are unaware of the need to plan ahead until something happens, and then the reaction is “What am I going to do?” A skilled attorney can sometimes help even in situations like that. Planning for retirement, disability, or death is unpleasant to some, and is frequently avoided. However, for successful retirement planning, you need to actually plan ahead. Certain gifting strategies, for example, are a good way to avoid federal taxation, plan for the education of your children, or to plan for Medicaid eligibility. At the very least, you should make a list of what all your assets are and where they are. Here are some other helpful tips to get you started.
Will I need Medicaid to cover the costs of long-term healthcare or nursing home?
When you reach 65 years of age, you can apply for and receive Medicare benefits. However, Medicare does not cover all of your medical costs. For example, Medicare fully pays only for the first 20 days of stay at a nursing facility. In New York, the nursing home costs average between $10,000 and $13,000 per month, reaching $15,000 in some counties, a cost that can destroy even substantial savings. Medicare also has co-pays for medical services, and many doctors do not accept Medicare. Private insurance is usually not an option, so Medicaid is often the only alternative for people to rely on for their long-term care.
Medicaid pays for full home care, and it also covers long-term hospitalization and nursing home costs. However, Medicaid eligibility is means-tested. If you have unprotected assets to pay for the costs of medical services, Medicaid expects you to completely spend your assets and become impoverished before it covers the costs of medical services. Applying for Medicaid is not as simple as giving away everything to your children and becoming immediately eligible. The Medicaid program reviews all transfers made during the five years preceding the Medicaid application, and it calculates a penalty during which long-term health care or nursing home services will not be covered if some of the transfers are gifts or transfers for less than fair market value.
The Medicaid look back period can be avoided with careful planning, but the options that are available to you will depend on a number of factors: your age, health, family situation, and whether you are planning to apply for Medicaid in five years, two years, or tomorrow. A knowledgeable attorney can help you plan in advance to be eligible for Medicaid benefits and to preserve most or all of your assets. Even in the worst case scenarios (if you are seriously ill and need Medicaid for long-term care tomorrow), there are ways to save some of your money.
What documents should I have in place to make it easier for my children?
Besides an estate plan (will, trusts, gifting strategies, how the legal title to property is held, or even some advanced methods of asset protection such as personal care contracts or promissory notes), an inexpensive power of Attorney will ensure that your children can make personal and financial decisions for you and sign legal documents should you lose your capacity to make the decisions and sign yourself. If there is no Power of Attorney, your children will have to go through expensive and lengthy guardianship proceeding in court, and then the court may limit what they can do. A Power of Attorney may give your agent as little or as much power as you want, and it may even give your agent the power to plan for Medicaid eligibility for you if it becomes necessary.
A good companion to a Power of Attorney is a Living Will, medical directives for your treatment in case you become terminally ill without prospects of recovery. A Living Will is honored by all treating physicians and hospitals, and it can save your loved ones a lot of anguish over making a decision about your final medical treatment. Despite many misperceptions, these are very serious legal documents, and they must be properly prepared, explained to you, and executed, or they will not be valid.
How should I plan for my estate to be distributed?
Wills are simply instructions on how to distribute your property after your death. The power of your instructions usually ends right after the distribution, with very limited exceptions. For example, such an exception may be a residual trust set up in a will, but it is usually better to set up a trust during your lifetime and to transfer assets into the trust during lifetime or direct the transfer in a will. Using a will and a trust in combination will help ensure that your legacy lives on and that your directions are followed for as long as you want, not limited in duration.
Trusts are legal entities for holding and transferring property and assets, similar in some respects to corporations. With certain kinds of trusts and estate planning methods, you can retain the right to use your property and money, or receive payments for your needs from the assets held in the trusts. Other kinds of trusts will help you plan and provide for the well-being of children who will need lifelong supervision and care because of physical or mental limitations. The needs of such children must be planned carefully so as not to affect their eligibility for government benefits, including Medicaid or SSI, by gifts, inheritance or your retirement accounts.
Trusts can also protect your children and grandchildren from creditors (both yours and theirs), from poor spending habits, from harmful addictions to alcohol, drugs, and compulsive gambling, and from divorcing spouses. Half of the money and property left to children outright frequently ends up in the hands of divorcing spouses, or the money may be used to satisfy judgments or child support obligations regardless of your wishes. A trust can also hold the proceeds of life insurance, allowing them to pass outside of the taxable estate.
Each of the subjects in this article is complicated, involving federal and state law, regulatory and tax issues, which constantly change and evolve. You should discuss these issues with a knowledgeable attorney, and, if warranted, with an accountant or financial advisor.