Rising Medical Costs and Retirement: Balance Matters
Many of us believe we have the “planning for the future” space covered. We’ve worked hard and saved; our homes are paid off by the time we go into retirement and as far as we’re concerned, life now consists of living well in the way we define, whether it’s grandchildren or traveling the nation in an RV. It can be challenging from a few perspectives. Here are a few things that can quickly annihilate our sense of independence, courtesy of rising medical costs.
With a bit of planning, important estate planning tools, such as a Medicaid Income Only Trust, can help preserve your independence after retirement without sacrificing your assets or your family’s peace of mind.
Don’t fall into the trap of believing Medicare will deliver what you need. A recent client told us about her best friend’s situation after she lost her husband. The woman encouraged our client to explore her estate plan, insurance policies and other legal documents so that there are no surprises. She would eventually become a new client, but not before falling ill in another state during one of her many road trips. She became quite ill and spent much time in the hospital. Her family was told that she would need long-term care in a nursing home. The doctors said it wouldn’t be a permanent scenario, but this type of long-term care was crucial for a full recovery.
The belief was that Medicare would cover these expenses, but the family soon learned that not only did Medicare not cover any of her nursing home expenses past 100 days, but there were also significant copays after the first 20 days. Further, she and her family learned that the costs of the nursing home would come to more than $8,000 each month. Up until then, she was sure the planning she and her husband put into place decades ago would sufficiently cover her bases in such a way that would protect the surviving spouse. With just one medical emergency, she lost the majority of her life savings. She now worries about not being able to leave her loved ones the assets she and her deceased husband decided years ago.
Many are incorporating a Medicaid Income Only Trust into their estate planning efforts. It’s an ideal way of not only protecting assets they wish to leave their families, but they also offset many of the ever-growing medical costs. Here’s how it works:
By directing your income into a Medicaid Income Only Trust, you’re “exempting” that income from counting towards the income cap. Most states have asset eligibility rules for qualifying for Medicaid. For example, if our client lived in a state with a $2,500 income cap, but she received $2,600 each month from Social Security, she wouldn’t qualify for Medicaid. If, however, she directed that $2,600 Social Security payment into the trust, she is then eligible for Medicaid coverage since those funds wouldn’t have been declared an asset and therefore, it wouldn’t have counted against her. She would no longer “own” the money; the trust would own it.
Had our client’s friend incorporated a Medicaid Income Only Trust, she and her family wouldn’t have faced that steep $8,000 monthly nursing home cost. Even though most of her income would have gone towards her medical care, the remaining balance would have been picked up by Medicaid and she would have also had a monthly allowance.
With just a bit of planning, you can better preserve your independence while also not feeling as though your family must shoulder the financial burdens because of rising medical costs. A qualified estate planning or elder law attorney can help you plan to preserve your financial independence.