Long-term care costs are a significant financial challenge, particularly in Georgia, where nursing homes currently cost about $10,000 per month—a figure that’s likely to increase every year. Planning for these costs is a critical part of estate planning. At Bryant & O’Connor Law Firm, we often encounter questions about how to approach these significant expenses. In this article, I’ll guide you through three primary options for planning for long-term care costs, each with its unique considerations and outcomes.
Option 1: Financial Planning Coupled with Foundational Estate Planning
Planning financially for possible long-term care is the best option if you start early. This approach allows you to maintain control over your assets without giving them away or getting the government involved in your care. However, financing long-term care without seeking government assistance requires accumulating either significant financial resources and/or insuring the risk of long-term care cost. The strategy includes:
- Long-term Care Insurance: By acquiring long-term care insurance, you can cover these costs without significantly impacting your savings. As you may know, long-term care insurance is not cheap, and it may be cost prohibitive if you are not in good health or if you wait until you are sixty or older. In any case, you should inquire about long-term care insurance to see if it’s an option.
- Comprehensive Financial Planning: A combination of savings, investments, and insurance ensures that you have the resources to pay for long-term care if needed. It’s about being proactive, preserving your assets, and providing for your needs without unnecessary government intervention. Again, this requires significant savings. For example, if you were to spend five years in an average nursing home at the end of your life, you would likely need at least $600,000.00 in resources to private pay for your care. If you wanted something more than average care, you likely need much more money than that.
- Foundational Estate Planning: Even if you have the money and/or long-term care insurance to cover potential nursing home costs, you still need estate planning to ensure proper management of your resources if you lose your capacity to manage your business. For example, a revocable living trust keeps you in control of your assets until you resign, become incapacitated, or die, but it ensures that your assets in trust are properly allocated and managed by someone you trust once you can longer be trustee. You also need a financial power of attorney and an advance healthcare directive for management of your affairs if you require a third party to act in your interests.
This approach, which we at Bryant & O’Connor Law Firm often recommend to younger clients with more time to plan, provides peace of mind and secures a comfortable future.
Option 2: Medicaid Asset Protection Trust
If long-term care insurance is not a viable option and you want to limit the exposure of your assets to long-term care costs, another alternative is strategically planning to qualify for Medicaid. When it makes sense, we help clients do this by setting aside property in an irrevocable Medicaid Asset Protection Trust. This strategy requires:
- Creating an Irrevocable Trust: This legal agreement allows you to protect some assets while still qualifying for Georgia Medicaid, though importantly you give up control of the assets in trust, and there is a sixty-month waiting period involved.
- Waiting Period: A sixty-month waiting period ensures compliance with Medicaid’s look-back rules. A condition of qualifying for Georgia Medicaid for a single person is having less than $2,000.00 in resources (with very limited exceptions), and it is illegal to get around this condition by giving away your assets to get under the resource limit. To make sure you haven’t unlawfully gamed the system, the Medicaid application inquires about any gifts you have made in the previous sixty months. If you have made gifts in that period, you are penalized just as badly as if you hadn’t given the assets away. Therefore, if you want to protect your assets in an irrevocable trust, you have to work around this sixty-month waiting period by funding a properly designed trust more than 60 months before you might seek Medicaid benefits.
With our experience in Medicaid planning at Bryant & O’Connor Law Firm, we can guide you through this complex process if you are motivated to protect your resources.
Option 3: Winging It – A Risky Endeavor
Unfortunately, some individuals find themselves without a concrete plan for long-term care costs, a situation we strongly advise against. The lack of planning can lead to:
- Ineligibility for Medicaid: You cannot wait until you need nursing home care and then simply give away assets to qualify for Medicaid.
- Financial Ruin: The high cost of care can quickly deplete savings, leading to financial hardship and nothing left at all for your loved ones after you die. If you own your home, Medicaid will likely put a lien on it, based on the costs paid for your care, after you die.
- Cheap Estate Planning: We see many people worried about nursing home costs engage in cheap planning options like making direct gifts to children, which often has negative tax consequences, ends up exposing assets to their children’s liabilities, and removes the owner’s control over who gets the asset after their death. Going the cheap route is often the most expensive, making things worse, not better.
- Crisis Planning: Even in a crisis when someone without a plan needs nursing home care soon, a lawyer who has a good understanding of Medicaid’s financial conditions may be able to save a family some money. Yet options are limited.
Estate planning for long-term care costs is a multifaceted and essential aspect of financial planning. By leveraging thoughtful attorneys and financial advisors, you can invest in the path that best fits your needs and goals. If you’re concerned about planning for long-term care, I invite you to reach out to Bryant & O’Connor Law Firm and schedule a meeting with me (Daniel O’Connor) or Rizza O’Connor. Together, if you formally engage us, we’ll explore your options and create a strategy that prioritizes your goals. Let’s start planning for your future today.
As always, our blog articles provide general information to make you think about the planning you need to do. However, blog articles are not legal, financial, or accounting advice tailored to your specific situation, and therefore you may not rely on this or any article we produce as professional advice. Please consult with the appropriate professional for your needs.