Traditional estate planning is based on notions that are out of sync with today’s realities.
Is the goal of your estate plan to make things easier for your heirs after you’ve died peacefully in your sleep?
Most of us won’t have the luxury of dying in our sleep. Thanks to modern medicine, most of us will survive conditions that would have killed us in the past. Our remaining years will be spent dependent upon others to meet our basic needs.
The kind of estate planning that most people do today is based on a “healthy today/dead tomorrow” paradigm which creates unintended consequences for middle-income Americans. Most believe that Medicare will pick up the tab for any care needed during retirement. This is NOT the case. Medicare won’t pay for long-term care, which can cost up to $15,000 per month.
This will lead to financial ruin, especially if your estate is between $50,000 and $1.5 million. The best solution for those of us in the middle is to engage in legal planning that will allow us to access public benefits like Medicaid when we need long-term care.
How do you qualify? In most states, a single applicant aged 65 or older is permitted up to $2,000 in countable assets to be eligible for Medicaid. If a couple is married and both spouses are applying for nursing home Medicaid, they are typically allowed to have $4,000 in countable assets.
If you’re a single person who needs Medicaid to pay for long-term care, traditional advice will have you spending down assets in order to qualify. Many small to medium-sized estates are needlessly decimated by this outdated advice. If you’re married and your spouse needs Medicaid to pay for care, traditional estate planners can only offer one solution: spending down your nest egg. An Elder Law Attorney, by contrast, recognizes that Medicaid only requires your ill spouse to be impoverished but, with careful planning, you, the well spouse, can hold onto most if not all of your assets, including the house.
But what happens when your ill spouse dies? The traditional estate plan leaves you, the well spouse, with all the assets. This may seem like a non-issue, and it is, until you get sick and need to access Medicaid to pay for long-term care. At that time, you’ll be forced spend down your assets to $2,000. Another once-healthy nest egg is gone—poof—all because you followed conventional estate planning advice.
Can you avoid this financial disaster? The answer is yes. A Safe Harbor Trust is one option. But don’t expect to hear about it from the traditional financial planning or estate planning industries. This legal planning tool doesn’t fit into their “healthy today/dead tomorrow” paradigm. Your best bet is to call an elder law attorney.
Rajiv Nagaich is an elder law attorney, author, adjunct law school professor, and retirement planning visionary who has achieved national recognition for his cutting-edge work with retirees and his contributions to the practice of elder law. He is the founder of two firms based in Federal Way: Life Point Law, an elder law and estate planning firm, and AgingOptions, a firm that provides retirement-related education to consumers and professionals. For more information, visit AgingOptions.com, LifePointLaw.com or call 877-762-4464.