Your grandparents lived well into their nineties, and so did your parents, and as a healthy senior, you have expectations to do the same. Your children may not be in the best position to take care of you, though, and you do not want to be a burden if you suffer mobility or other health issues that run in your family. On the other hand, if you need long-term care once you reach your early eighties, it may take all your assets to cover your expenses for a decade.
Medicaid does cover many of the costs of living in a nursing home, but there is a maximum amount of assets and income allowable. As long as you make more than that amount, you will have to pay for your expenses yourself. Fortunately, you have estate planning options that will not deplete your family’s inheritance.
Give your children their inheritance now
You cannot wait until you are ready to transition to a nursing home to reduce your income and assets. Forbes magazine explains that Medicaid has a five-year look-back rule that establishes penalties on all gifts made within five years of the application. If you expect to need long-term care, it is a good idea to begin distributing your assets among your heirs now. There are also gift tax limits that prevent you from transferring a significant amount of wealth at once, so depending on how much you have to give away, you may need to make yearly disbursements to reach the right amount at the right time.
Create an irrevocable trust
But what about that five years when you have to live on a much lower income than you currently enjoy? Instead of giving everything away now, you could set up a trust, which is a separate entity, and transfer your assets to that trust. Once the trust owns them, they do not count toward your own asset allowance. You then select a trustee to manage the trust. While you cannot be your own trustee in this case, you may choose an adult child or another family member to fulfill this responsibility, thus ensuring that you can live comfortably without depleting your assets through long-term care costs, penalties and unnecessary taxes.