Start Estate Planning NOW to Safeguard Your Assets from Long Term Care

One common misconception is that estate planning is only for the ultra wealthy. Well, if you have over $2,000 of assets, not including your primary residence, then this piece of estate planning is for you. Stay tuned.

Welcome back to another episode of We're Talking Money. I'm Dustin Hocken, wealth advisor at OmniStar Financial Group. Today I'm going to share with you five tips to protect your hard-earned assets from a long-term care event. The idea for the show came from a great discussion with one of our clients, really where the motivation for a lot of these videos come from.

Now, before we get started, I hope you'll consider subscribing below. We put out new relevant content every week with one mission in mind: to help our viewers make better financial decisions.

Strategy number one: long-term care insurance. Long-term care insurance is probably the most common and recognized strategy that's going to be on this list, but it's a great way to protect your assets. One, long-term care insurance is going to give you a pool of money that you can use for qualified long-term care expenses.

The second way long-term care will protect your assets is if you want to qualify for Medicaid, you can only have $2,000 of assets plus your primary residence. Well, if you have a pool of money in a qualified long-term care contract, then that pool is added to your $2,000 minimum. So now, instead of, say, $2,000, if we have a $500,000 pool of money, now you can have $52,000 of assets plus your primary residence.

Strategy number two: creating a life estate. This is a wonderful strategy for property or other things that you may have in your estate that you don't want to lose if you need long-term care. Creating life estate allows you to transfer ownership of property to someone else while you still retain the ability to use the property. Also, if you end up going into a home, you could actually rent this property, and you have the right to receive all the rents.

However, if you do start to receive rental income, you're going to want to make sure it stays under the Medicaid monthly income limits. These vary state by state, so be sure you're working with an elder care attorney or your financial planner, if they're qualified for this complex planning.

Strategy number three: financial gifts. Almost anyone would rather see their hard-earned assets go to their family members compared to paying for long-term care costs. Financial gifts can be a great strategy to move assets out of your estate and qualify for Medicaid. However, you want to be aware of the 5-year look back rule when you apply for Medicaid. What this says is they're going to look at financial transactions over the past five years, and if any property was moved out of your estate solely for the purpose of qualifying for Medicaid, you could be subject to a penalty where you can't qualify for Medicaid for a period of time.

Also, you want to be aware of the consequences of gifting property while you're alive. When you gift property to someone, they assume your basis. Meaning, if you bought a property for a hundred grand and now it's worth a million and you gift it, if they sell that property for a million, their basis is still 100 Grand. Whereas if you can pass it through your estate, like, for example, our strategy number three, your life estate, when you pass away there's a stepped up basis in that property. So if your beneficiary turns around and sells that property for a million dollars, there's zero capital gains tax. This type of planning is extremely complicated, and that's why we always recommend an elder care attorney to walk you through your options.

Strategy number four: turning assets into income with a Medicaid compliant annuity. This can be a great strategy, but it's also very complicated. You're going to want to make sure that you have an elder care attorney on your team. We've done plenty of these Medicaid compliant annuities over the years, and we always work very closely with an elder care attorney. There's just a lot of boxes to check. A lot of things need to be done a certain way, and if it's not, then all those assets can be brought right back into the estate and have to be spent down in order to qualify for Medicaid. Elder care attorneys are essential for this type of planning.

Lastly, strategy number five: transferring assets to an irrevocable trust. This strategy is, well, irrevocable, so we try not to use this too often, but that doesn't mean it's not considered by our firm. When you put assets into an irrevocable trust, it's very difficult to get them out. You would have to have a trustee and a beneficiary decide that they should remove the assets. They would then need to go to the court to explain their reasoning, and it has to be approved. For this reason, we try to use other strategies other than an irrevocable trust.

If you do decide to go with an irrevocable trust, remember that Medicaid is a 5-year look back period when you apply. So, just like the other strategies, you'll want to be proactive with this one.

So there you have it: five strategies to protect your assets from a long-term care event. Now you have some of those tools that we use to protect your hard-earned assets. Remember, this type of planning is very complicated. It needs to be done perfect, so you're going to want an experienced elder care attorney along with an experienced financial planner.

If you need an introduction to an elder care attorney, please don't hesitate to reach out. Or if you just want to throw some ideas off us at OmniStar, we're happy to help. Don't try to do this on your own, and don't delay with a 5-year look back. It's never too early to start this type of planning.

Thank you for watching, and please consider subscribing if you found this information valuable. I'll see you next time on We're Talking Money.

Thanks for joining us on We're Talking Money. Be sure to visit us at OmniStarFinancial.com, where you can learn more about how we provide value to our clients, subscribe to the show and our newsletters, and drop us a line with topic suggestions for upcoming shows. If you enjoyed the show, we would appreciate you passing it on to a friend and providing a rating on iTunes.

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