Between Retirement And Estate Planning, Don't Forget This Potential Pothole

Retirement planning and estate planning predominate the latter half of personal finance timelines. Once the initial plan is set into motion early in life, the next benchmark is retirement, followed by securing the future of your descendants.

Unfortunately, one piece of the puzzle that often gets overlooked is the period leading up to death. This is perhaps because of the vast amount of uncertainty surrounding late in life care; perhaps it is because of the utter convoluted nature of Elder Law. Regardless, as with any other period in life, the last years deserve astute planning and preparation.

Sometimes referred to as end of life care or Medicaid planning, this preparation is for the time when it is difficult or impossible for you to provide for yourself.

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The Bigger Picture

Within the last century, the average lifespan has quite literally almost doubled. At the turn of the 20th century, life expectancy was less than 50 years old; with the turn of the 21st century, the life expectancy of Americans is 79 years old. As the country's population ages, never before encountered challenges face the federal and state governments.

While providing assistance to the elderly has remained an important concern, the magnitude of people needing assistance is unprecedented. With the growing number of people applying for aid, the costs likewise increase exponentially.

The government has provided Medicare and Medicaid to help protect and provide for individuals after their retirement; yet, in part because of the high demand, specific qualifications exist and stringent regulations are in place regarding coverage. Medicare, the national health insurance program, is available to those over 65 years old (or disabled individuals) and provides short-term assistance. Medicaid, on the other hand, is federal and state funded, state administered, and is a "medical benefit program" that functions separately from insurance.

End Of Life Care: Why Is Aid So Coveted?

The cost of living for those who need end of life care is extraordinarily high. Nursing home bills can easily average between $4,000 and $5,000 a month, leaving countless families in miserable situations. Few retirees or their families can pay these amounts for an indefinite period of time. So, families are faced with four ways to pay for care:

1. Long-term care insurance – a fairly new coverage, and therefore not typically applicable for the current aging population.
2. Paying out of pocket – not sustainable for many because of the exorbitant financial strain.
3. Medicare – helpful for short-term, but not in place to provide for long-term solutions.
4. Medicaid.

It is therefore easy to see why end of life care is often synonymous with Medicaid planning. Even for those individuals who were financially secure throughout their lifetime and into retirement, the prospect of changing residencies and moving to an assisted care facility or nursing home brings with it what can feel like insurmountable financial challenges.

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Medicaid: Simple In Theory, Difficult In Execution

As a representative from Clinkscales Elder Law practice stated, "Medicaid has become the long-term care insurance of the middle class. But, the eligibility to receive Medicaid benefits requires that you pass certain tests on the amount of income and assets that you have."

"The reason for Medicaid planning is simple. First, you need to provide enough assets for the security of your loved ones – they too may have a similar crisis. Second, the rules are extremely complicated and confusing. The result is that without planning and advice, many people spend more than they should and their family security is jeopardized."

Simply put, in order to qualify for Medicaid assistance, an inventory of your assets is taken, cataloged and scrutinized. Assets are either considered exempt or non-exempt. If the amount of non-exempt assets exceeds a specific level, Medicaid is not available.

Exempt Assets: Home, personal belongings, one vehicle, burial pots, burial funds, funeral contracts, income-producing real estate.

Non-Exempt Assets: Cash, savings, checking accounts, credit union shares, boats, recreational vehicles, multiple vehicles, stocks, bonds, mutual funds, revocable trusts, IRAs, prepaid/cancelable funeral contracts, real estate.

So, in order to meet the regulations and qualify for Medicaid assistance, many people are faced with the dilemma of determining how to minimize their non-exempt assets without jeopardizing the complete wipeout of their estate, which could leave their family security at risk.

Where it becomes even more complicated: states often have a Medicaid "look back" program where they will analyze past financial history (for example, Massachusetts' look back is five years). These state regulations are in place to ensure that those seeking help are not manipulating the system, but rather have properly planned and gone through the appropriate channels to gain assistance from the state and federal government. This may come across as a big brother/babysitter program that inevitably is in place to complicate the process and minimize government payouts. This is a gross misunderstanding.

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Medicaid Is Ultimately In Place To Help, Not Hinder

While it may seem like there are numerous fiery hoops that have to be jumped through in order to get any assistance from federal or state governments, the stringent qualifications and regulations are in place to protect those in the most need of aid. It does take proper organization and considerable time to establish a plan, but the results are worth the effort. With adequate preparation, Medicaid planning can protect your assets and your estate, while still ensuring sufficient end of life care.

Disclaimer: The above information is for educational purposes only. As Elder Law is extremely fluid and highly organic, it is highly recommended that before any decisions are made regarding your future or the future of your loved ones that a lawyer who specializes in Elder Law or a qualified/certified advisor be contacted. The information above does not constitute legal advice, nor should it be treated as such.