Don’t Let Long-Term Care Bankrupt Your Family: The Right Estate Planning Can Help

As people live longer and the Baby Boomer generation retires, more and more of us are over 65 and facing the medical realities of older age. A person who retires today has a 70 percent chance of needing long-term care in their later years, and the cost of that care can be a serious issue.

Depending on the level of care you need, an assisted living facility or nursing home costs on average between $4,000 and $8000 per month. That’s a number that may shock you and can be a serious drain on a family’s finances – either bankrupting a couple or passing the strain onto their grown children.

But it doesn’t have to be that way, says attorney James Davidson, a Texas Legal network attorney and partner with his brother in the Davidson Law Group. They want to let Texans know what their options are as they age and the best ways to protect themselves financially and prepare for the costs of long-term care.

Why You Need to Plan for Your Long-Term Care Costs

The Davidson  brothers actually got into estate-planning law after seeing how the costs of long-term care affected their grandparents.

“We saw our grandfather battle with cancer and go through eight years of long term care. In the process, he lost all of his assets and left our granny with nothing. Now, she needs care and our moms and her siblings are having to pay thousands out of pocket to take care of her,” says Davidson.

“My grandfather a World War II veteran and a very proud man. It would have absolutely horrified him that he was a burden to his family,” says Davidson. “There were estate planning tools we could have used to protect them.”

Davidson says what happened to his grandparents is unfortunately quite common, and not many people realize that there’s something that can be done to prevent it.

“A lot of people just assume that it’s an inevitable thing – a spouse or a loved one goes into assisted living or nursing facility, and you spend down your assets until you die or run out of money, when Medicaid or VA kicks in,” says Davidson. “If you just make those assumptions, most people end up spending hundreds of thousands of dollars on assisted living or skilled nursing when that could have been prevented.”

A recent client Davidson met with provided a good example: a man, 62, who had just retired, and his wife, who had been recently diagnosed with Huntington’s Disease, a progressive brain disorder that will likely mean she needs many years of long-term care. With five to ten years of skilled nursing care costing several thousand dollars a month, they could easily spend all their retirement savings on her care, potentially going through all their assets and leaving him with nothing for his own care. Fortunately, Davidson put together a plan to help protect their assets as they face this difficult diagnosis together.

“For a significant portion of Americans, their long-term care costs will be the largest cost of their lifetime,” he says. “It’s important for people to know their options.There are options other than just spending down your assets.”

The First Step: Considering a Long-Term Care Life Insurance Policy

Davidson first recommends purchasing a long-term care life insurance policy, if you can afford it. Generally, these policies can cost a few thousand dollars a year, but they offer the dual benefit of a long-term care insurance plan and a life insurance policy. If you need long-term care, you get an amount from the policy to pay for it. Paying for long-term care reduces the amount your beneficiary receives when you die. If you don’t need long term care, the death benefit amount stays the same.

The downside of these plans is that they can be costly, and you wouldn’t be eligible if you’d already received a serious diagnosis. But if you can afford it, Davidson recommends them as a good way to protect to pay for long-term care while protecting yourself and your spouse.

Protecting Your Assets Through a Trust

Davidson often recommends an asset-protection trust as a good strategy for safe-guarding your assets against long-term care costs. Medicaid and VA benefits only kick in when a person has reached a certain low-point of income and assets. That means many people spend down their savings and assets paying for care until Medicaid or VA benefits start paying.

“To qualify for medicaid, you have to have below $2,000 in assets and below a certain amount of income. For most people, they have too many assets,” says Davidson. “I tell people, ‘If you can give me five years, I can move all the assets into your trust. Then, for Medicaid purposes they are not countable.”

When your assets are owned by a trust, they don’t affect your eligibility for Medicaid, although you are still able to control them as the trust owner.

Davidson says five years because of Medicaid’s look-back period for assets. Medicaid examines your financial history and penalizes you for assets within the last five years. This prevents people from suddenly gifting all their assets to their children, for example, in order to qualify for government assistance. So Davidson helps people move their assets into a trust, knowing that they won’t qualify for Medicaid until five years later.

“We fund their assets into a trust until we qualify them for government assisted long term care,” said Davidson. “No one wants a basic Medicaid level of care, but with this type of trust planning, you can use your assets on top of Medicaid to bring your loved one up to a higher level of care. You can get them a private room, for example, which Medicaid doesn’t pay for.”

How to Find the Right Attorney to Plan for Your Long-Term Care Costs

Davidson says planning ahead is the most important thing you can do when it comes to the most effective long-term care strategy.

“For your average healthy person, you really need to start thinking about it in your 60s,” says Davidson. “If you have a family history or other considerations, you may want to start planning earlier.”

One important consideration is to sign up for Medicare as soon as you’re eligible, and if you have older parents or other loved ones, make sure they are signed up. Davidson had a client whose father had turned 65, but due to his cognitive difficulties, had not signed him up for Medicare. After a fall, he ended up in the hospital for a few weeks, and they later received a $400,000 hospital bill for his stay.

“Start looking into it before it’s too late,” says Davidson. “You can wait until there’s a crisis and then we have to go into crisis mode, but if a client plans ahead, I can preserve all of their assets.”

What kind of attorney should you look for? Davidson emphasizes that you want more than an estate planning attorney. Look for an attorney who handles elder care cases, because that will give them the experience with Medicaid and VA rules that they need to know about.

Texas Legal members can see an estate planning attorney and plan for their long-term care as part of their policy coverage. To find an attorney near you, use our online Attorney Finder to find someone who handles estate planning and then ask questions about their familiarity with elder law and long-term care planning. You can also call our customer service line at 1-800-252-9346 or email us at members@texaslegal.org to get help locating an attorney near you.