When it comes to paying for long-term care, clients have two options – Impoverishment (qualifying for government assistance such as Medicaid or Veteran’s Benefits) or Empowerment (Preplanning/proactive planning).
Preplanning/Proactive Planning for LTC occurs when our clients are still pretty healthy. The client is not in need of care at the moment and we don’t anticipate them needing care in the near future. Preplanning is always going to be the best option as it allows the clients more choices and options to plan with their assets and where they want to receive care. From a legal standpoint, preplanning usually involves transferring most of the assets into an irrevocable trust and waiting out the 60-month lookback period. This seems easy enough when dealing with after-tax/non-qualified assets; however, setting up an irrevocable trust when the clients have a lot of tax-qualified/IRA assets can be difficult because we cannot transfer those assets into the trust without incurring immediate tax consequences. You’re likely seeing more of these cases nowadays where clients are tax-qualified/IRA rich and cash poor. The days of clients have large pensions to help pay for long-term care are rare. Therefore, IRA assets can be problematic when trying to preplan. When implementing preplanning, since clients are still healthy, they are typically insurable for long-term care insurance. LTC can be a great way to leverage the clients existing assets.
Alternatively, Crisis Planning occurs when the client is already in need of care or will be in the very near future. In a crisis planning scenario, the goal is to get the client eligible for Medicaid or Veteran’s benefits as quickly as possible -- to “stop the bleeding”. There are various planning techniques that can be employed but generally we’re looking to convert countable assets into non-countable or exempt assets. This can be done by prepaying funeral expenses, making home improvements, purchasing a new car, purchasing a Medicaid Compliant Annuity, etc.
Preplanning is important because it gives the clients the most options. If we think about any scenario where we have the option to preplan (retirement, employment, etc), it’s always better to be proactive than reactive and be in crisis mode. The most recent federal legislation related to Medicaid was the Deficit Reduction Act, which created a 60 month look-back period. This means that any transfers, gifts, etc. that are transferred within 60 months will be clawed back for purposes of paying for long-term care. Also, preplanning is important because most clients want to be able to stay at home as long as possible (vs. going into a nursing home). Many states only cover the cost of care in a nursing home not home care.
Crisis Planning is important because so many people find themselves in a situation where they didn’t preplan. Many Americans think that Medicare will cover their LTC expenses which simply isn’t true. We all know that long-term care is expensive and a lot of families try taking on the role of caregiver until it becomes unmanageable and then they seek out an elder law attorney to help them qualify for VA or Medicaid benefits.