We plan to go on vacation. We plan to have dinner with friends. But when it comes to planning for how we'll be taken care of as we advance in age, many of us prefer not to think about it, believing it will somehow all work out. Unfortunately, that’s not always the case. The estate planning legal team of Skeeters, Bennett, Wilson & Humphrey works hard to make sure you and your family know how to successfully prepare for the future. Here are three scenarios that illustrate what a difference it makes.
Where to Start With Estate Planning
We’ll feature Hank, 72, and Ellen, 69. Retired for several years, they frequently travel to visit children and grandchildren in nearby states. During a recent visit, their oldest child asked them whether they had made any plans in the event one of them suddenly got sick. They hadn’t, as both of them were in good health. However, they agreed to seek some advice upon returning home to see what their options were.
Hank and Ellen own the home they purchased when they married 45 years ago. They also have checking, savings, and CD accounts totaling $325,000. They both worked most of their adult lives, carefully watching expenses and never spending money on extravagant items they didn’t feel they needed. They also had a will, although it needed updating, and had established a power of attorney to care for certain contingencies in the event they were unable to.
A Thoughtful, Effective Estate Plan Approach
The couple spoke with an elder law attorney, and were surprised to learn that they could plan now to avoid running out of money in the future should they need long-term care either at home or in a facility. This legal counsel advised them to place $200,000 and their home into an irrevocable trust and name their children as beneficiaries of the trust. This ensured that if necessary, their children would be able to take a distribution from the irrevocable trust rather than using their own money for Hank and Ellen’s needs.
Additionally, The $200,000 placed into the irrevocable trust wouldn’t be counted against them after five years should either of them need long-term care and the assistance of state benefits to pay for it.
Then, acting on their attorney’s recommendation, Hank and Ellen transferred the remaining $125,000 in assets to a revocable trust to draw from for their living and travel expenses. Ellen also applied for a long-term care insurance policy to provide further protection for them should her health fail. Hank had applied previously but was denied.
When Circumstances Changed, the Plan Didn’t
Unfortunately, six years later, Hank had a severe stroke and was unable to use his right arm or leg. Ellen tried caring for him at home but was simply unable to, so the couple decided Hank would receive more comprehensive assistance in a nursing home. Unsure of how to pay for long-term facility care, Ellen went back to their elder law attorney for help.
Because they had planned ahead and the irrevocable trust was in place, Ellen could keep all of the remaining cash assets in their revocable trust, and Hank qualified immediately for state Medicaid benefits. The irrevocable trust (which had grown to $215,000) remained in place but didn’t count against Hank’s eligibility, since more than five years had passed and neither Hank nor Ellen had any direct access to the trust assets.
Ellen was incredibly relieved to know she didn’t have to pay for Hank’s care and could instead focus on providing as much support as possible to him. Although Ellen wasn’t able to obtain long-term care insurance after all, she has peace of mind knowing their children continue to manage the irrevocable trust and are ready to help as needed.
What If There Wasn’t an Estate Plan?
Let’s assume Hank and Ellen didn’t plan ahead. When Hank had a stroke at age 78, the couple had $300,000 in checking, savings, and CDs. The couple applied for Medicaid, and under the Medicaid regulations in place at the time, Ellen was able to keep $110,00 of the assets, but most of the remaining assets had to be used for Hank’s care, leaving only $90,000 to be transferred to the children and hopefully protected from the state.
However, while their home was protected as long as Ellen still lived there, if she were to become ill as well, the home could be subject to a lien by the state. Additionally, it took nearly two years for Hank to qualify for Medicaid, and the process was incredibly stressful for Ellen and her children. Since Ellen doesn’t have any trust protections in place as part of an estate plan, their remaining assets are at risk if her health fails.
What If Hank Wasn’t Married?
A third scenario features Hank as unmarried but with the same assets, will, and powers of attorney. If he planned early, key assets would be protected in an irrevocable trust, including his home, and others in a revocable trust so he has access to them if necessary.
When his stroke occurs, assets in the revocable trust could be transferred or turned into an income stream to help pay for his nursing home care until he’s approved for Medicaid. Because he has a power of attorney established, this eliminates the need for a court-appointed guardian to handle his financial and medical affairs.
If Hank didn’t plan ahead, more than half of his liquid assets may have to be used to protect his home and pay for care. This would leave only $50,000 to transfer to the children—or to an irrevocable trust if that option is still available. Without a power of attorney, if Hank doesn’t have the capacity to make transfers or to establish an irrevocable trust, a guardianship proceeding would have to be initiated before any transfers could be made. Furthermore, the guardianship court would have to grant permission for such transfers to be made.
Estate Planning Now Protects You in the Future
The scenarios above have highlighted the importance of older adults and their loved ones planning early for the possibility of needing long-term care. In addition to the obvious financial benefits, there are numerous non-financial gains, including reduced stress on the family, fewer legal complications, and peace of mind knowing that the family’s needs are taken care of, regardless of any health care crisis that may occur.
If you would like a free consultation to discuss planning for long-term care, one of our elder law attorneys would be happy to discuss the potential options for your future.