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Health care planning as an essential part of estate planning
By Kevin Wedmore
Most of my clients have done some form of estate planning -- even if their idea of estate planning is simply who gets the good china when they die. For many others, however, formal wills and trusts outline their desires, and they fully expect things to go as planned at the time of their death. But there is one looming obstacle that could keep that plan from being fulfilled--and that is the probability that they or their spouse will require health care that can bankrupt their estate. With proper planning, however, this interruption in creating their legacy can be avoided.
First, a quick refresher: Your client is probably going to have to endure some level of long-term health care at some point in their life. They will have to pay for this care by privately paying the expenses until they run out of money, unless they had the ability and foresight to purchase long term care insurance (And I hope that is what you have directed them to do).
If your clients can't afford or qualify for this coverage, then hopefully other plans are in place to ensure your client's funds are not depleted by nursing home costs, impoverishing their spouse or killing their legacy. A variety of hybrid products now exist that allow your client to protect their estates while simultaneously building funds to pay for long-term health care expenses; these include traditional life insurance products, single-premium life products and annuities with long term care benefits. Any of these are a welcome alternative to long term care insurance (LTCI), where underwriting or premiums are obstacles to securing the sale. If you are not familiar with some of these products and benefits, consult either your carrier or marketing organization.
If neither long term care insurance or a hybrid contract is possible due to poor health or finances, then Medicaid planning becomes an alternative. Again, Medicaid planning is simply applying the rules under which Medicaid says you can keep or transfer assets. The vast majority of Medicaid planning is done to ensure that the community spouse does not become impoverished, and that your client has both adequate income to live on as well as some resources to draw from in the event of an emergency. The community spouse also gets to retain the principal residence, a car and all personal belongings. In order to make certain that the community spouse does not have to change his or her lifestyle, Medicaid rules also allow that spouse to retain all income in their name, even if that income is higher than the living standard set forth by the government. To do this, they even allow assets in excess of certain limits to be used in order to purchase an immediate annuity that will increase the community spouse's income.
As part of the estate planning process, determining which method of payment is going to cover long-term health care expenses will help determine which planning strategies are necessary now and in the future. For example, someone privately paying for nursing home expenses may not worry as much about other changes to their wills, trusts, etc.,; while someone qualifying for Medicaid may need to implement a number of changes to those documents. As a case in point, most couples have an "I love you" will, meaning that when the husband dies, he leaves everything to his wife, whom he dearly loves, and, conversely, she sets up her will to leave everything to her husband.
The problem with this strategy when it comes to health care planning is that if the husband dies while his wife is in the nursing home -- and he leaves everything to her -- the money, property, etc., that he left her will now be subject to calculating how much and how long the wife will have either to start or continue paying for her own care. Also, if both names remain on the deed of the house, that home may be subject to recovery efforts by the state Medicaid office. Even worse, if everything is held in an irrevocable living trust, the funds are immediately available, so the house will need to be sold and converted to cash in order to pay for the health-care expenses. So, while the wills and trusts were set up properly for estate planning purposes, they may actually increase the family's exposure to health-care costs.
Furthermore, additional benefits such as SSI disability and the Veterans' Aid and Attendance (VA) program may be affected. Once again, it important to know and plan accordingly if your client is a veteran or if he or she is the surviving spouse of a veteran. The VA program can provide up to $22,104 per year ($1842 per month) of tax free income to help pay for home health care, assisted living, or nursing home expense. When computing this benefit in the estate planning process, the amount of money out of the pocket of your client can be minimized and perhaps more assets would be available to support the community spouse. This benefit can also assist in Medicaid planning, as it can be used to help in privately paying for a facility in order to get past any look-back period created from the gifting or transferring of assets.
So, what do you suggest to clients when the subject of long-term health care comes up? Do you investigate how they expect to pay for care? Do you ask if they are a veteran or surviving spouse of a veteran? Do you know how to determine if they are eligible for the VA Aid and Attendance program? Do you know how their wills and trusts are directed so you can provide some guidance as to how to converse with their attorney on the matter? Are you familiar with LTCI, hybrid policies or Medicaid planning? And, are you helping your clients develop a health care plan as part of their estate plan?
It may be more important than ever to help your clients prepare for the probability of long-term health care expense. We are living longer, staying home for care longer, and processing through the health care continuum of home health care, assisted living and nursing home care on a regular basis. With proper planning, you can help your client by alleviating the fear of running out of money before they run out of life.
*For further information, or to contact this author, please leave a comment and your e-mail address in the forum below.
First, a quick refresher: Your client is probably going to have to endure some level of long-term health care at some point in their life. They will have to pay for this care by privately paying the expenses until they run out of money, unless they had the ability and foresight to purchase long term care insurance (And I hope that is what you have directed them to do).
If your clients can't afford or qualify for this coverage, then hopefully other plans are in place to ensure your client's funds are not depleted by nursing home costs, impoverishing their spouse or killing their legacy. A variety of hybrid products now exist that allow your client to protect their estates while simultaneously building funds to pay for long-term health care expenses; these include traditional life insurance products, single-premium life products and annuities with long term care benefits. Any of these are a welcome alternative to long term care insurance (LTCI), where underwriting or premiums are obstacles to securing the sale. If you are not familiar with some of these products and benefits, consult either your carrier or marketing organization.
If neither long term care insurance or a hybrid contract is possible due to poor health or finances, then Medicaid planning becomes an alternative. Again, Medicaid planning is simply applying the rules under which Medicaid says you can keep or transfer assets. The vast majority of Medicaid planning is done to ensure that the community spouse does not become impoverished, and that your client has both adequate income to live on as well as some resources to draw from in the event of an emergency. The community spouse also gets to retain the principal residence, a car and all personal belongings. In order to make certain that the community spouse does not have to change his or her lifestyle, Medicaid rules also allow that spouse to retain all income in their name, even if that income is higher than the living standard set forth by the government. To do this, they even allow assets in excess of certain limits to be used in order to purchase an immediate annuity that will increase the community spouse's income.
As part of the estate planning process, determining which method of payment is going to cover long-term health care expenses will help determine which planning strategies are necessary now and in the future. For example, someone privately paying for nursing home expenses may not worry as much about other changes to their wills, trusts, etc.,; while someone qualifying for Medicaid may need to implement a number of changes to those documents. As a case in point, most couples have an "I love you" will, meaning that when the husband dies, he leaves everything to his wife, whom he dearly loves, and, conversely, she sets up her will to leave everything to her husband.
The problem with this strategy when it comes to health care planning is that if the husband dies while his wife is in the nursing home -- and he leaves everything to her -- the money, property, etc., that he left her will now be subject to calculating how much and how long the wife will have either to start or continue paying for her own care. Also, if both names remain on the deed of the house, that home may be subject to recovery efforts by the state Medicaid office. Even worse, if everything is held in an irrevocable living trust, the funds are immediately available, so the house will need to be sold and converted to cash in order to pay for the health-care expenses. So, while the wills and trusts were set up properly for estate planning purposes, they may actually increase the family's exposure to health-care costs.
Furthermore, additional benefits such as SSI disability and the Veterans' Aid and Attendance (VA) program may be affected. Once again, it important to know and plan accordingly if your client is a veteran or if he or she is the surviving spouse of a veteran. The VA program can provide up to $22,104 per year ($1842 per month) of tax free income to help pay for home health care, assisted living, or nursing home expense. When computing this benefit in the estate planning process, the amount of money out of the pocket of your client can be minimized and perhaps more assets would be available to support the community spouse. This benefit can also assist in Medicaid planning, as it can be used to help in privately paying for a facility in order to get past any look-back period created from the gifting or transferring of assets.
So, what do you suggest to clients when the subject of long-term health care comes up? Do you investigate how they expect to pay for care? Do you ask if they are a veteran or surviving spouse of a veteran? Do you know how to determine if they are eligible for the VA Aid and Attendance program? Do you know how their wills and trusts are directed so you can provide some guidance as to how to converse with their attorney on the matter? Are you familiar with LTCI, hybrid policies or Medicaid planning? And, are you helping your clients develop a health care plan as part of their estate plan?
It may be more important than ever to help your clients prepare for the probability of long-term health care expense. We are living longer, staying home for care longer, and processing through the health care continuum of home health care, assisted living and nursing home care on a regular basis. With proper planning, you can help your client by alleviating the fear of running out of money before they run out of life.
*For further information, or to contact this author, please leave a comment and your e-mail address in the forum below.
