Estate planning used to be more focused on avoiding estate taxes. For the majority of people today, their estate will not have to worry about paying estate taxes unless their estate is over $5 million. However, the chances are significantly greater that they will need some type of long term care in an assisted living facility, nursing home or at home. There are several ways to fund long term care including 1) out of pocket, 2) with Long Term Care insurance, and/or 3) government assistance like Medicaid or VA benefits.
If you are asset rich then you may be able to “self insure” your long term care risks by just paying out of pocket. Or, if you qualify and can afford the premiums, long term care insurance can be a great way to prepare for the high costs of long term care. A majority of people today in local nursing homes use Medicaid to pay for their stay. There are many misconceptions about qualifying for Medicaid. Some think that in order to qualify you cannot have any assets and that Medicaid will take away your home after you die. While there is some truth to having limited assets, with proper planning some or most of your assets may be able to be preserved while allowing Medicaid to assist financially.
Through the use of special irrevocable trusts assets can receive protection from estate recovery after death and will not be countable during the Medicaid application process. However, Medicaid has a 5 year “look back” period on gifts and transfers to these types of trusts so it is imperative to plan well in advance.