Earlier planning for long-term care critical for asset protection

You have spent your entire working life building up the value of your estate. The more assets you've acquired, the more diverse your possessions may be. In addition to equity in your home, you may have investment accounts and other valuable possessions.

If you have taken the time to create an estate plan, that probably means you have dependents or heirs to whom you would like to leave your belongings. However, if you haven't already taken steps to plan for long-term care in your final years, you could end up leaving behind nothing but a heap of bills.

Medicare won't cover long-term care

One common oversight of retirement planners is failing to plan for long-term care. These kinds of medical and lifestyle supports can cost thousands of dollars a month and quickly eat through a lifetime's worth of assets. While you may have paid into both Social Security and Medicare insurance programs as a working adult, those programs will not pay enough to offset the costs of long-term care as you age.

Typically, people who require nursing care in their later years will need to apply for Medicaid. Unlike Medicare, Medicaid has more potential benefits, but it also limits the overall value of your estate and your income. Careful planning may be the only way to access Medicaid in your later years.

Medicaid requires careful planning for asset protection

Even if you have substantial assets, they likely won't cover the monthly costs of nursing homes or skilled nursing care for several years. If they do, that likely means you won't have anything left to leave for your family.

When you apply for Medicaid, you will have to provide the government with documentation about your current income and the total value of assets that you currently possess. Unlike bankruptcy, which only requires six months of financial analysis, Medicaid has a five-year look-back period.

In other words, any significant financial transfers in the last 60 months will be subject to scrutiny when you apply for Medicaid. If you made large gifts to your children, moved assets into a trust or otherwise sought to protect or gift assets within the five years prior to your application, there will be a Medicaid penalty.

Effectively, you will have to pay out-of-pocket for the amount that those assets are worth. Obviously, planning more than five years prior to your application is key to protecting your assets and ensuring access to this critical insurance program in your later years. Creating and funding a trust now or gifting smaller amounts to your heirs annually can ensure that you get to utilize your assets in the manner you wish without incurring financial penalties later in life.

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