When you create an estate plan, it is natural to focus on what will happen to your assets after your death. A comprehensive estate plan, though, should also prepare for the possibility that you will need assistance during your lifetime. As Americans continue living longer, the likelihood of requiring some form of long-term care continues to increase. Whether that care is provided in your home, an assisted living community, or a skilled nursing facility, the financial consequences can be significant if you fail to prepare in advance. Unfortunately, people often underestimate both the likelihood of needing long-term care and the cost of receiving it. The good news is that by planning early, you can better protect your financial security, preserve more of your estate, and maintain greater control over how and where you receive care if the need arises. With that in mind, the attorneys at Wilcox Attorneys, PA discuss the importance of long-term care planning in your Arkansas estate plan.
Understanding Your Potential Long-Term Care Needs
Long-term care encompasses a broad range of services designed to assist individuals who are no longer able to independently perform everyday activities. Many people associate long-term care exclusively with nursing homes, but you may require assistance long before nursing home care becomes necessary. Depending on your health, assistance may be provided in your own home, an assisted living community, an adult day program, or a skilled nursing facility.
Although no one can predict exactly what the future holds, several factors increase the likelihood that you may eventually require long-term care, including advancing age, chronic illness, mobility limitations, family medical history, and cognitive conditions such as Alzheimer’s disease or other forms of dementia. Planning while you remain healthy provides considerably more flexibility than attempting to make complex financial decisions during a medical emergency.
The Financial Impact of Long-Term Care
One of the primary reasons long-term care planning has become such an important component of estate planning is the extraordinary cost of care. At an average yearly cost of almost $100,000 in Arkansas, several years of nursing home care could be extremely expensive. Moreover, this expense often arrives at the same time your income has declined because of retirement or disability.
Many families discover too late that they simply do not have sufficient resources to pay for years of ongoing care without significantly reducing their retirement savings, and the financial impact extends beyond the person receiving care. A healthy spouse may suddenly face reduced household income while continuing to pay mortgages, utilities, insurance premiums, and other living expenses. Adult children may also experience financial strain if they reduce work hours or leave employment entirely to help care for an aging parent.
Understanding the Limitations of Medicare
One of the most common misconceptions about long-term care is that Medicare will cover the cost of that care. Unfortunately, that assumption is incorrect. Medicare primarily covers acute medical treatment, physician services, hospitalization, and limited skilled nursing or rehabilitation services following a qualifying hospitalization. Consequently, it usually does not pay for ongoing custodial care that assists with everyday activities such as bathing, dressing, eating, or supervision resulting from cognitive impairment. If you need extended long-term care, you must rely upon personal savings, long-term care insurance, Medicaid, or a combination of these resources.
Should You Consider Long-Term Care Insurance?
Unlike traditional health insurance, long-term care insurance policies are specifically designed to help cover services associated with long-term care, including in-home assistance, assisted living communities, memory care, and skilled nursing facilities. Purchasing coverage while you are younger and healthier generally offers several advantages. Premiums are often lower, underwriting requirements are typically easier to satisfy, and more policy options may be available. Waiting until significant health problems develop may substantially increase premiums or make obtaining coverage impossible. If you decide to explore long-term care insurance, carefully evaluate factors such as:
- Daily benefit limits.
- Lifetime benefit amounts.
- Elimination periods.
- Inflation protection.
- Covered services.
- Policy exclusions.
Medicaid Planning as Part of Your Arkansas Estate Plan
For many Arkansas seniors, Medicaid eventually becomes an important source of payment for long-term care services. Because Medicaid is a needs-based program, qualifying for benefits requires satisfying detailed financial eligibility requirements. Without advance planning, you may be required to spend a substantial portion of your countable assets before becoming eligible for assistance. Incorporating Medicaid planning into your estate plan allows you to evaluate lawful strategies for preserving assets while preparing for the possibility that you may eventually require nursing home care or other long-term services. When coordinated with your overall estate plan, Medicaid planning can help protect your financial future while providing greater flexibility regarding your future care choices.
Understanding the Medicaid Five-Year Look-Back Period
One of the most important aspects of Medicaid planning is the five-year look-back period. When you apply for Medicaid to help pay for long-term care, the state reviews many of your financial transactions completed during the sixty months immediately preceding your application. The purpose of this review is to determine whether you transferred assets for less than fair market value to qualify for benefits sooner than you otherwise would have. If the state determines that prohibited transfers occurred during the look-back period, you may be assessed a penalty period during which you are otherwise financially eligible for Medicaid but remain ineligible to receive long-term care benefits. During that time, you may be responsible for paying significant nursing home or long-term care expenses out of your own pocket. Because these rules are highly technical, transferring assets without first consulting an experienced Arkansas estate planning attorney can create unintended and expensive consequences.
Can a Medicaid Asset Protection Trust Help?
For some families, a Medicaid Asset Protection Trust (MAPT) may become an important component of long-term care planning. A MAPT is an irrevocable trust designed to remove certain assets from your countable estate for Medicaid eligibility purposes while preserving those assets for future beneficiaries. Once assets are transferred into a properly structured trust and the applicable look-back period has expired, those assets may be protected from being spent on long-term care costs. When appropriate, a MAPT can help preserve family wealth while allowing you to prepare for future long-term care needs without unnecessarily exhausting your estate.
Can We Help You with Medicaid Planning in Fayetteville?
For additional information, please sign up for one of our FREE estate planning webinars. If you would like assistance with Medicaid planning in Fayetteville, contact the experienced Washington County, Fayetteville, Springdale, Rogers, Bentonville, and Northwest Arkansas Medicaid planning attorneys at Wilcox Attorneys, PA by calling 479-443-0062 to schedule your appointment today.
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