A question I get all of the time from clients who are either asking for their parents or for themselves is how to protect assets and prepare for long term health care needs. In other words, how do I protect my money from going to a nursing home?
The question is not easy to answer since there are several variables and I am not an attorney. However, I can tell you that what I have learned over the last 25 years is that there are solutions and there are strategies to help you keep more of your money in your pocket.
The biggest problem with this topic is that more often than not people wait too long to beginning thinking about this. This is true with nearly every financial planning scenario. People tend to think they can take care of things later but later never comes and then it is too late. So, a word of advice here…don’t delay in getting your plan in place otherwise you may become another statistic.
Now, there are a few things to consider when preparing for long term care and protecting what you have. A few questions that can and will determine which option is best suited for your situation.
- Are you married and do you have kids? If so, then you will definitely want to begin getting a plan in place soon.
- Do you trust your kids with money? This will be important since some of the options involve having people you can trust to help you incorporate some creative financial planning.
- Do you have sizable assets and are you healthy? The truth is that not everyone needs to do what I am suggesting or may not even qualify.
These are just a few determining factors for navigating this process but since this is a complex topic I will simply offer you a few options to consider.
The first is the easiest and that is to do nothing. You can take the approach that you will not need any assisted living and therefore don’t need to protect your spouse and your kids. If you noticed I said spouse and kids. The truth is that protecting your assets and your long-term health care is really not about protecting you. The reality is that once you drain your assets the government will step in and provide benefits. So, its not like you will not be taken care of to some degree.
No, the people who get hurt from you doing nothing are your family members, especially your spouse. The reason why is because your care will drain your assets that your spouse may need to live on or what would otherwise go to your kids. So, not the best option for family unification and should be avoided in my opinion.
If you are a spouse, or a child of parents who have assets who are over the age of 55-60, then you may want to open up a conversation about this topic with them. This is to protect you and may require effort from you to move the process along.
A simple and popular option is to purchase a long-term care policy. It is not all that expensive if your healthy and it can be a simple solution to a complex problem. The biggest obstacle for people when it comes to long term care insurance is the idea of paying a premium. Yes, there is a cost and it depends on age and health so quoting something here would be misleading but I can tell you that you are looking at premiums that are probably less than you think but more than you want to pay. The reality is that no one wants to make any insurance premiums but if you want a simple solution this is it and it really does not cost much.
Another option is to give everything you have away! That’s right, if you don’t have anything in your name then there is nothing for the nursing home to take away. This is not what I would suggest but it is an option. Give everything to your kids and cross your fingers and hope they find it in their heart to take care of you.
Besides the risk of them heading off to Costa Rica, there is another problem with this approach. The 60-month look back. If you give all of your assets away to your kids and three years later end up in a nursing home, the nursing home will be able to look back to see what you did and include those assets. In this scenario you better hope the kids didn’t spend the money!
So, if you are going to do something like this you will want to realize that there is a 5 year wait before your strategy will work and be sure to tell the kids to not spend the money because you may need it back.
A better way of going about this is to work with an attorney to set up what they call an irrevocable trust. Most people are familiar with a revocable trust where you are the trustee of your trust but an irrevocable trust is something entirely different where you are not the trustee.
With a revocable trust the assets are still part of your estate but with an irrevocable trust they are not. The irrevocable trust is not owned or controlled by you at all. It has its own tax id and the trustees are someone other than you.
Now, you may ask why anyone would do such a thing. You have no control over the trust and the assets are not considered yours. Well, there are many benefits to using a trust like this such as legal protections and nursing home avoidance. Since you do not own the trust, have any control over the assets and the trust is not part of your estate then the nursing home does not recognize the assets as being yours.
Keep in mind here that just like with the idea of giving your assets away to your kids, transferring assets to an irrevocable trust also has the 60-month look back. So, again, waiting until you need to do something is often too late. However, unlike just giving the money to the kids, the trustee often understands that this money is being stored outside of your estate while you are living and they are just overseeing the asset.
There is much more to this than these three basic points but the most important take away from this should be that the cost of a nursing home can erode an estate rapidly. I have seen clients who were receiving bills pushing $10,000 per month…yes per month! So, when you think of $120,000 per year going to pay for a nursing home, how long will the money last?
There are strategies to preserve wealth and cover the cost of nursing home care but you cannot wait until the last minute to find solutions to an urgent situation. You have to have the forethought to address this before you need to so you have time.
If you have any questions about protecting assets shoot me an email. I get questions about this and many money related topics all of the time and I am happy to try to point you in the right direction.
The article and opinions in this publication are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you consult your accountant, tax, or legal advisor with regard to your individual situation. Kalos Capital, Inc. does not provide tax or legal advice. The opinions and views expressed here are for informational purposes only. Please consult with your tax and/or legal advisor for such guidance.