Paying for Long-Term Care: The Importance of Planning Early

Paying for Long-Term Care: The Importance of Planning Early article image

Written by: Michele Procino-Wells, Esq.

We plan to go on vacation. We plan to have dinner with friends. But when it comes to planning for our care as we advance in age, many of us prefer not to think about it, believing it will somehow all work out. Consider the two scenarios below that contrast the different outcomes of planning early and choosing the “wait and see” approach for long term care.

The Facts Hank is 72 and Ellen is 69. They have been retired for several years. Recently, their oldest child asked them whether they had made any plans if one of them suddenly got sick. Hank and Ellen had not thought much about this since both of them were in good health. However, they agreed to seek some advice to see what their options were.

Hank and Ellen own a home and they have checking, savings and CD accounts that total $325,000. They both worked most of their adult lives, carefully watching their expenses and never spending money on extravagant items they didn’t feel they needed.

Scenario #1 – Hank and Ellen planning ahead. Hank and Ellen spoke with an elder law attorney, as they knew they should update their will and powers of attorney. While there, they were surprised to learn that they could actually plan now to avoid running out of money in the future should they need long term care. They placed $200,000 and their home into an irrevocable trust, and named their children as beneficiaries of the trust. If needed, their children would be able to take a distribution from the trust rather than using their own money for Hank and Ellen’s needs.

They kept the remaining $125,000 in a revocable trust that Hank and Ellen would use for their living expenses. The $200,000 placed into the irrevocable trust would not be counted against them after 5 years, should either of them need long term care and the assistance of state benefits to pay for it.

Unfortunately, six years later Hank had a severe stroke and ended up in a nursing home. Ellen tried caring for him at home but was simply unable to. Because they had planned ahead and had set up an irrevocable trust, Ellen was able to keep all of the remaining cash assets in their revocable trust, and Hank was able to qualify immediately for state Medicaid benefits. The irrevocable trust (which had now grown to $215,000) remained in place but did not count against Hank since more than 5 years had passed. Ellen was incredibly relieved to know that she did not have to worry about paying for Hank’s care and could instead focus on visiting him and providing as much support as possible to him.

Scenario #2– Hank and Ellen without planning ahead. Let’s assume Hank and Ellen did not plan ahead. When Hank had a stroke at age 78, the couple had $325,000 in checking, savings and CDs. Under the Medicaid regulations in place at the time, Ellen was able to keep approximately $125,000 of the assets, but most of the remaining assets had to be spent for Hank’s care. While their home would be protected since Ellen was still living there, if she were to become ill the home could be subject to a lien by Medicaid.

It took nearly two years to get Hank qualified for Medicaid, and the process was incredibly stressful for Ellen and her children. Furthermore, no planning has been done for Ellen and if her health fails, their remaining assets are at risk.

Conclusion The scenarios above highlight the importance of seniors planning early for the possibility of needing long term care. There are not only financial benefits to doing so, but also numerous non-financial benefits, including reduced stress on the family and peace of mind knowing that the family’s needs are taken care of regardless of any health care crisis that may occur.