3 Steps to Preserving Assets in the Face of Long-Term Care

This is the last in my series of articles on estate planning, but that does not mean it is the least important.  Statistically speaking, over 60% of us will end up in long-term care.  The current cost to live in a care center is about $120,000 a year.  Therefore, even folks with net assets approaching the seven-figure mark may quickly become impoverished if they must privately pay for long-term care for more than a few years.  

What steps can you take to structure your finances now, so that everything is not vulnerable to being either spent or at least liquidated because of a future need for long-term care? 

1. Long-term care insurance pays for long-term care. If you do elect to obtain long-term care insurance, get enough to fully pay for your care.  If you do not, the cost for the long-term care premiums is a total waste of money. The benefit of having long-term care insurance is that you can choose where you want to spend your long-term care days and are not limited to facilities that accept Medicaid as a payer source. 
2. Transfer assets to an irrevocable trust. If the trust is properly designed, assets that have been in an irrevocable trust for at least five years prior to applying for Medicaid are not “countable.”  This means that you do not report to the state that you have them, well, because you don’t.  You do not get to be the trustee of this trust, and you do not get to be a beneficiary of the trust.  You must think of it as putting early inheritance away for your children.  Because you cannot take it back, it no longer counts as yours.  Assets appropriate for this type of trust are real estate with no mortgage (residence or farm), collectable vehicles, and/or investments that do not have specialized tax treatment. 
3. Crisis planning. This is what we call it when we do not have five years to plan before we suspect someone will need Medicaid.  Ideally, this planning starts about six months before you actually need to go to the care center.  However, there is nearly always substantial value in this planning even if you are already in the care center.  An elder law attorney can provide you with the education you need to know what your options are.