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Planning for End of Life: Protecting Your Family Legacy

December 14, 2023

One of the most difficult aspects of Estate Planning is talking about how you want to be cared for at the end of your life. But planning for that now offers more strategies to ensure your family has the finances for your end-of-life care while protecting the portion of your estate that you want to go to them.

In this latest episode of Wood + Lamping Estate Planning attorney Mark Reckman shares insights on what to think about to protect your family legacy.

Episode Transcription

Navigating the Challenges: Amy Wagner’s Personal Experience

Amy Wagner

You are listening to Simply Money, brought to you by Allworth Financial. I’m Amy Wagner, along with Steve Sprovack. Something that happened to my family years ago, which still comes up with other people that I’m talking to, is my grandparents had worked really, really hard for years, and they had built up a pretty good nest egg for themselves. And then my grandpa got sick with Parkinson’s. He was about 86 years old, and all of a sudden he needed skilled care. And then my grandma wanted to be near him, and they were literally blowing through thousands and thousands of dollars every month trying to just keep up with their bills and my grandpa’s needs. And it was really difficult as a family member because they had always talked about how they wanted to have this legacy that they passed on to my dad and then me after that.

Understanding the Impact of Long-Term Care on Family Finances

Navigating the Challenges: Amy Wagner’s Personal Experience

Welcome, listeners, to Simply Money, presented by Allworth Financial. I’m Amy Wagner, here with Steve Sprovack. Today, we delve into a topic close to my heart – the financial challenges that can arise from unexpected long-term care needs within a family.

The Family Legacy Dilemma

A personal story sets the stage for our discussion. Amy shares how her grandparents, who had diligently saved for their retirement, faced significant financial strain when Parkinson’s struck her grandfather. The need for skilled care resulted in a rapid depletion of their nest egg. The desire to pass on a legacy was overshadowed by the financial strain.

Seeking Guidance: A Conversation with Mark Reckman

So joining us tonight is our estate planning expert from the law firm of Wood and Lamping, Mark Reckman. Mark, I’m sure this is a very familiar tale. You’ve seen it many times. What can we do? Is there anything we could have done in that situation to have protected any of that money? Because I can tell you that by the time my grandparents passed away in their nineties, there was almost nothing left.

Mark Reckman

Well, and this is a very, very common situation, as you mentioned, and it will become more common of course, as the baby boomers reach. I mean, the baby boomers at this point are all in their seventies and eighties and is the biggest, largest bubble of population in this country. And so we’re only going to see more and more of it over the next 20 years. It’s a real issue. And to go with that, Amy, the government does not have unlimited funds, and we do not have a system in our country in which the government or the health insurance companies pay for the kind of long-term care that you’re talking about.

The Medicare-Medicaid Distinction

We do have Medicare, which is a federally subsidized health insurance program, but that’s for medical care. And in my world, we make a distinction between medical care and custodial care. Custodial care means room and board. It means room and board for people who have limited physical abilities or limited mental abilities. Medical care is treatment which benefits someone medically that they improve, that they get better, and that they’re going to eventually get well enough to be on their own. Medicare is common. Everybody over 65 and people with disabilities are eligible for Medicare. And it’s a wonderful program. It’s part of the Great Society, which was set up by Lyndon Johnson back in the sixties. Medicaid, however is different. Medicare is for everybody who signs up and pays the premiums. Medicaid is not. Medicaid pays the nursing home bills, the room and board kind of bills, not the medical bills, but the room and board expenses of people who have no money. It’s a welfare program. It’s for people who were in essence broke. And so what we’re talking about here is it possible for you to set aside some money and still qualify for that program? And to do so is somewhat controversial because the government does not have unlimited funds. And so when we talk about this, we need to be very sensitive to the fact that it’s an area where there can be abuse, and certainly no one in this program is interested in advocating abuse. Having said that, there are rules, and if you follow the rules, there are ways that you can in essence tuck away some limited funds for children and grandchildren.

Steve Sprovack

Mark, I want to back up a little bit because I think the number is only about 7% of people have some type of long-term care insurance. And it’s fairly common that when somebody is close or needs nursing, full-time nursing care, they just assume Medicare covers a nursing home. It doesn’t. And that’s when they say, oh, wait a second. So the government’s going to make me spend my own money. That’s not fair. But that’s the way the rules are. If you have any assets of any, well, any appreciable assets,

The Controversy Surrounding Asset Protection

Mark Reckman

Right? And fairness is a funny concept, Steve. What the government has agreed to do is to provide subsidized health insurance through the Medicare program. They’ve also agreed to cover people who were broke. So they’re not people who cannot take care of themselves or living on the streets that much, the government. But the truth is they don’t have the financial capacity to pay the nursing home bills for everybody in the boomer generation. They simply can’t afford it.

Amy Wagner

And so you’re in a situation, Mark, where there is some accumulated assets, they’re spending them down, but the family sees on the horizon the fact that Medicaid is coming, but there is some money left, right? And of course, yes, we want to do this legally. And one of the things that my family learned during that time was my grandparents couldn’t just gift my father money because it looked like probably within the next year he was going to be on Medicaid. And there’s actually that five-year look back window. Let’s talk about that and what that does.

The Lookback Rule: Understanding the Five-Year Window

Mark Reckman

Well, over the decades of my practice, we’ve always had a lookback rule. And what that means is that Medicaid is a welfare program. It pays the room and board, the nursing home bills of people who have no money, people who are broke. It’s certainly possible for a person to give away their money and claim that they’re broke. And so there’s always been a rule that says you cannot qualify for Medicaid by giving away your money. And over the years there’s been a, we call that the lookback, the transfer penalty. And the essence of the most important piece of the transfer penalty is this look back concept. The idea is that if you make transfers before you qualify for Medicaid, and if you do that in order to qualify for Medicaid, and there are some exceptions, but unless you meet one of those exceptions, if you transfer money and apply for Medicaid within a certain window, you’ll be penalized.

And the penalty means that you’ll be disqualified. In essence, it’s a disqualification. They don’t fine you. They don’t put you in jail. They just simply disqualify you from benefits that look back window. Today is five years and it’s been five years for who the best decade. And I suspect it’ll stay that way for a while. So bottom line is that if I give my money away, if I give away $250,000 and I turn around and apply for Medicaid a year later, Medicaid’s going to bounce me. They’re going to say, you’re not eligible for Medicaid because you made a gift a year ago, and that’s during this five-year look back window.

Steve Sprovack

So, what can you do? What tools are available?

Irrevocable Trusts: A Strategy for Asset Protection

Mark Reckman

Well, the one thing we hear about all the time, Steve, which is something I sort of wanted to get out on the table, there are people out there who will tell you that using an irrevocable trust and putting your money into an irrevocable trust is a great strategy. Understand, of course, that to do this, you’ve got to do it five years ahead because if you do it during the five-year lookback period, you’re going to be disqualified. But if you act five years or more earlier, you can put your money into an irrevocable trust. And this is a technique that I have seen and I have used on a few occasions. I’m not a big fan of it, reasons we’ll talk about in a minute, but I do know that there are planners out there who use irrevocable trust. So, what does that mean? Well, a trust is a legal entity.

Mark Reckman

It’s a document that we sign and it creates a legal entity in which one person called the trustee holds money or property for the benefit of someone else who’s called the beneficiary. The trustee has to follow the rules that are listed in the trust document. They have to do what the trust document says, and whether the assets in that trust are counted by Medicaid depends on the terms of the trust and depends on who created it. Now, trust can be irrevocable or they can be revocable. A revocable trust is one in which the person who created it can change it or take the money out or put money in or terminate the trust altogether. Revocable trust don’t work for Medicaid planning at all. That’s not what we’re talking about today. We’re talking about the irrevocable trusts, and of course, the word irrevocable sends shivers down the spines of every estate planning lawyer because you only got one shot to get it and you only got one shot to get it right. But in Ohio, you can create an irrevocable trust in which you say, I’m putting my money in this trust, I’m going to put someone else in charge of it as the trustee, and I’m only entitled to receive the income that that money creates. I’m not allowed to touch the principle. And if I then wait five years, and if the trust terms are appropriate and the trust has got to be exactly correct, if that trust is correct, then in theory that the principle of that trust doesn’t count when I apply for Medicaid, only the income.

Wrapping Up: The Importance of Early Planning

Amy Wagner

These things can be incredibly tricky in somewhat technical, but if you’re listening tonight, I’m telling you, this is the kind of thing you’re going to want to know when and if you ever get to this situation because in a lot of cases it can sneak up on you and at least you’ll have the background. Great insight as always from our estate planning expert from the law firm of Wood and Lamping, Mark Reckman. You’re listening to Simply Money here on 55 KRC, the Talk Station.

About the Author

Mark S. Reckman

Mark S. Reckman

Mark Reckman has been with Wood + Lamping since 1979

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