Greg Alexander

Long-term care is expensive and must be planned for properly

Baltimore Sun, November 2003

“As you get older, proper planning is vital for asset protection and to plan for medical assistance eligibility. I always say that mature people put everything in writing,” says Bernard Pollock, an attorney who specializes in elder care law. This advice may sound easy and a commonsense approach; however, surprisingly, most Americans do not even have a simple will outlining where they want their assets to go upon death, and few have the foresight to incorporate long-term care into estate planning.

Pollock recommends that when someone reaches age 45, it’s a good idea to have a will, power of attorney and a living will drawn up by an attorney. Pollock adds that it’s important at that time to start thinking about long-term health care financing. “It may seem like a long way off, but the future has a way of catching up with you,” he says, adding that many people believe that they will be able to rely on Medicare and Medicaid to pay for a nursing home or assisted living facility. Generally, long-term health care expenses are not paid by Medicare, and receiving Medicaid assistance requires that one meet very strict financial guidelines, and typically one must “spend down” the estate in order to qualify.

“Long-term care is incredibly expensive and very difficult to plan for without first seeking professional advice,” echoes Jason Frank, an elder care attorney who also is the president of the Maryland/Washington, D.C. chapter of the National Academy of Elder Care Attorneys and author of the textbook, Elder Care in Maryland. “I’ve had clients who worked hard, made a decent income, had an IRA and nice house but only had $2,000 a month budgeted for a retirement income. Considering that a nursing home can cost $6,000 per month, it’s easy to see how you could run out of money very quickly.”

Frank says that in order to qualify for either a Medicare long-term nursing care program or a Medicaid waiver program, you must meet many requirements. “You must be a resident of Maryland, a citizen or qualified alien and your income must be less than the nursing care bills. Plus, you must be sick enough to be in a nursing home, and your medical eligibility is determined by the state.”

Frank says that an asset criteria also must be met, and this typically involves “spending down” the estate. “For example, for a married couple, if the husband gets ill, his wife is allowed to protect their house, car and 50 percent of the remaining estate, as long as the value of half of the remaining estate does not exceed $90,660. Any remaining assets must be spent before the husband can qualify for assistance.” Frank says that ways the wife could spend the remaining assets include home repairs, a down payment on a retirement community or “gifting” assets to a family member, although “gifting” can involve tax penalties.

“Gifting must be done correctly to avoid penalties,” Frank adds. “Besides basic monetary gifts to dependents, you can also add a dependent’s name to a titled asset such as property or stocks, which is considered a gift. Additionally, a care-giving child, brother or sister can be given a home without penalties.”

“Gifting” also is a useful tool to reduce the amount of an estate when you are alive so that your dependents will not be hit with severe inheritance taxes upon your death.

“Typically, if your estate is valued at less than $2 million and it’s titled properly, your surviving heirs will not incur inheritance taxes,” says Harry McCrory, CPA, CFP, regional manager of financial services for Clifton Gunderson, LLP. “For a married couple, each spouse can bequeath $1 million each. If the husband dies, for example, $1 million can be transferred to the wife, who, upon her death, can leave this to a family member without tax penalties.”

However, McCrory warns that many people do not know the value of their estate. “Many people forget about such things as life insurance policies. You have to be careful that the policy is not considered part of your estate. Otherwise, a $500,000 life insurance policy can increase the value of your estate over that $2 million limit. Make sure that the policy is part of a trust and not your personal estate.”

McCrory says that if you need to decrease the value of your estate so that your heirs do not incur inheritance taxes, gifting is the way to go. “Currently, you can give $11,000 each year to an unlimited number of people without penalties. Of course, saying it and doing it are two different things,” he laughs.

McCrory also advises that individuals be familiar with the “fine print” of pension plans and IRAs. Most IRAs, he says, allow you to name a child as a beneficiary. The advantage of doing this, he says, is that it allows the child to draw off the IRA after your death over the course of the child’s life expectancy. “However, due to the administration costs, some plans require a lump sum distribution upon death, retirement or a buy out, so you need to be familiar with all the rules,” McCrory warns. An alternative to this, he says, is to designate a non-profit organization as the beneficiary of an IRA, as the charity will not be required to pay taxes on the IRA.

“If you have stocks and an IRA to bequeath, it’s better to leave the stocks to a child, niece or nephew and the IRA to the charity so that neither has to pay taxes on the inheritance.”

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