When you are devising your estate plan, it can seem like it is all about arranging for asset transfers after you are gone. Clearly, this is at the root of the process, but all of this planning will not do much good if you don’t have anything left to leave to your heirs. Unfortunately, there is a looming expense that many people do not consider, and it can potentially have a devastating impact on your legacy.
If you have paid into the program sufficiently throughout your life, Medicare coverage will be available to you when you reach the age of 65 under currently existing laws. It will certainly help, but there are out-of-pocket expenses that you should take into consideration, including deductibles, co-payments, and monthly premiums. Though these costs can add up, most people that enter their retirement years on solid financial footing can comfortably manage them.
On the surface, it would seem as though Medicare will prevent you from any truly devastating health care costs. Unfortunately, there is an enormous gap in the coverage. Medicare will not pay for a stay in a nursing home, and they are extremely expensive. The exact cost will vary depending on the specific facility in question and its geographic location. A six-figure annual bill is quite possible for a room in a nursing home, and costs have been rising year-by-year.
A Distinct Possibility
There are those that assume that only a small percentage of people actually spent time in nursing homes. In reality, this is not the case at all. If you live until you are 70 years of age, it is likely that you will live past the age of 85. According to the United States Census Bureau, the oldest segment of the population grew faster than any other between 2000 and 2010. The Alzheimer’s Association tells us that about 40 percent of people that are 85 years of age and older have contracted the disease.
Many people who are suffering from Alzheimer’s disease will need nursing home care, and of course, patients with other conditions can require nursing home care is well. When you combine all of these facts, you can see why you may want to take steps to brace yourself for potential future nursing home costs.
The Medicaid Solution
All the above can sound like a rather gloomy scenario, but there is a widely embraced solution, and we help clients take advantage of each and every day. Medicaid is a jointly administered federal/state government program that does pay for long-term care. As you are probably aware, this source of health insurance is only available to people with extremely sparse resources. There is a limit on countable assets that is just $2000, (if a spouse is living at home other limits may apply) but some property is exempt, including your home (though there is an equity limit).
When it comes to the assets that are in your possession that would be counted, you could choose to give them to loved ones who would be inheriting them someday anyway. People often refer to this process as a “Medicaid spend down.” This can certainly be done, but it is a little more complicated than it may appear to be on the surface.
The Medicaid program does not want you to find out that you need nursing home care on Monday, give away assets on Tuesday, and enter a nursing home that is paid for by Medicaid on Wednesday. This would not be consistent with the spirit of the program. As a response, there is 60 month look back period in place. Any gift giving that you engage in must be completed at least five years before you apply for Medicaid to pay for long-term care.