A recent report from the Alzheimer’s Association states that one in nine Americans age 65 or older currently have Alzheimer’s, and 1 in 3 seniors dies with Alzheimer’s or other dementia. Since 2000, deaths from Alzheimer’s disease have increased by 89%. When planning your retirement and estate, it is essential to plan for your incapacity.
Estate Planning Consequences
A person suffering from dementia loses control of his or her affairs. It is important to plan ahead how your assets will be used and to whom they will go at your death, and that planning has to be done before you are affected by dementia. In the event you are incapacitated (by dementia or otherwise), it is crucial that you have already authorized someone to act on your behalf, both for your assets and your healthcare. If you have established a trust for estate planning purposes, that trust should include language that names successor trustees to take over your trust if you are incapacitated. The trust should normally direct your trustee to use the assets of your trust for your benefit during your life. You should also have a Durable Power of Attorney authorizing an agent to act on your behalf to sign documents and manage your financial affairs for you if you are incapacitated. A second document, a Durable Power of Attorney for Health Care, authorizes an agent to act on your behalf to make crucial health care decisions for you. Your agent under this second document will be able to decide when you need the higher level of care provided in an assisted living facility or nursing home.
Long-Term Care Insurance
A major concern for those planning for the effects of old age is how to pay for their care. Long term care services at a facility can often cost more than $6,000.00 per month. Some have the assets to pay their own way. But these costs are out of reach for many and can eat through everything they have built over their lifetimes. One way to pay for long-term care without losing everything is long-term care insurance. Long-term care insurance will pay for all or some of the cost of an assisted living or nursing home facility, depending upon the policy. But by the time most people think about taking out a long-term care policy, it is too late to qualify. Many hesitate to buy long-term care insurance out of fear that they will never use it. Some insurance companies mitigate this risk by offering a hybrid policy that combines long-term care insurance with life insurance. If you have the income to fund insurance premiums, this can be an effective way to plan ahead for the effects of aging and dementia.
Medicaid Trust Planning
Medicaid is a state program that pays for long-term care for truly indigent seniors. This is different from Medicare, which will usually pay for a few weeks in a nursing home, but does not pay for long-term care. Medicaid can save you a tremendous amount in long-term care costs if you qualify. With the right planning, you can benefit from Medicaid and also leave assets to your loved ones.
In order to qualify for Medicaid, you must have no more than $2,000.00 to your name, together with a few exempt assets, and virtually all of your income must be used to pay toward your own care. You cannot simply give away your assets to your children to qualify for Medicaid; in fact, Medicaid will look back five years from the date of your application to make sure you haven’t given anything away to qualify. If you have, Medicaid considers you to still own those assets and imposes a penalty.
Putting your assets into an ordinary estate planning trust will not help you qualify for Medicaid. But if you transfer some of your assets to a specialized, irrevocable Medicaid trust, you can transfer those assets out of your own name and still maintain some control over who benefits from them. Once five years have passed after the transfer to your Medicaid trust, all assets in that trust are safe from Medicaid. If you plan for Medicaid to pay for your care, this is the best way to save the maximum percentage of your assets for your children, rather than spending them all on your care. And even if you do need long-term care before the five years have passed, you can qualify using other methods.