Why aging adults need to start planning for long-term care now

Estate planning can be quite stressful, which can lead some people to rush through this critical process. Far too many people overlook long-term care planning when they sit down to plan their estates. They focus on what assets they would like to leave to which family members, while neglecting the potential reality of nursing home costs absorbing all of that money.

Even families with substantial assets can find that assisted living or nursing home facilities eat through a lifetime's worth of savings in only a few years. That's why it is so important for aging adults and the people who love them to discuss long-term care planning as soon as possible.

Medicare will not cover assisted living or nursing home facilities

Many older Americans rely on Medicare for health coverage. While Medicare does cover basic medical expenses, it has many large gaps in coverage. One of the most glaring issues is the lack of long-term care coverage or nursing home coverage in Medicare insurance. In other words, Medicare will not help pay for in-home skilled nursing or nursing home costs incurred by you or your loved ones.

Thankfully, Medicaid does cover the costs of nursing home care and similar care for older adults. However, qualifying for Medicaid when you have substantial assets can become rather tricky. Medicaid has a look-back period that is either three or five years, depending on the assets the person applying has accumulated. Those who have made substantial financial transfers within the look-back period will incur penalties equivalent to the amount of money transferred. In other words, until they pay as much as they transferred to loved ones, Medicaid will not cover any of their expenses.

Trusts and early transfers are ideal ways to avoid Medicaid penalties

Anyone approaching retirement age should consider the potential that they may eventually require long-term care. That way, they can plan accordingly and protect their financial legacy for their families.

Moving substantial assets into a trust is one of the easiest ways to avoid issues with Medicaid in the future. You could continue to live in your home, after deeding it to the trust, without the value of the home impacting your eligibility for Medicaid when you need it. You can also place other assets, including liquid capital and investment accounts, in a trust. Limiting how much you can access in any given year will help ensure that you do not accidentally make yourself ineligible for Medicaid.

Older adults may also want to consider transferring assets directly to heirs as they age. For example, your family could decide to gift just under the maximum tax exempt amount allowed to each heir every year until all capital has been disbursed. This protects heirs from tax liabilities and ensures that those assets won't end up paying for a nursing home in the future. Each family is unique, so it is important to keep an open mind when determining the best way to move forward with long-term care planning.

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