Are you concerned about the rising cost of long-term care? Are you worried about not being able to leave your spouse or kids the assets that you’ve worked so hard to save? If so, then I'm going to share a solution to help you better plan for this big risk in retirement.
As we all know, long-term care costs are one of the biggest risks in retirement. Three of my four grandparents have needed long-term care, and the experience has been hard — not only emotionally but also financially. The cost of long-term care can be anywhere from $50,000 to $100,000 a year, depending on your location and the type of care. The average stay can be anywhere from two to five years, so that length affects the overall financial impact.
Knowing that 70% of people will need long-term care at some point in their retirement means that it is especially important for you to plan for. The only problem is — how do we plan for such costs, especially when long-term care insurance is so expensive? Add to that the fact that we have to be insurable to be able to get it. So, instead, let's talk about another option that may be attractive to some people.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The opportunity is called a Medicaid asset protection trust. The idea of this is to move money out of your estate into this type of trust so that the government cannot come after it for Medicaid planning purposes. Let's take a step back to understand how Medicaid planning works. The government will offer you free long-term care assistance after you spend down the majority of your assets. The good news is that you get the care you need. The bad news? You lose what you have worked so hard for. So how do we ensure we get the care we need but also protect what we've worked hard for? That's where this trust comes into play.
This trust has to be set up the right way
First, we must set this trust up the right way and give it enough time to satisfy the look-back period. Then Medicaid will not consider those assets when deciding if you are eligible for Medicaid. This can be of a lot of value for those with larger amounts of non-qualified assets, such as multiple properties or non-retirement investments. The things to note with this trust is you will want to make sure it is an irrevocable trust. Now, that can be scary because an irrevocable trust typically means you have no access to those assets anymore. But if you set this trust up the right way, you can still have access to those assets.
It's important to work with an estate planning attorney who specializes in this area. For our clients, we have an attorney who meets with them at our office to ensure this gets done the right way.
You also want to make sure that you’re not getting sold this trust if you do not need it, because not everyone needs it. If you don’t have any non-qualified assets, and all of your assets are in an IRA, then it may not make sense for you. Current rules state that money in an IRA will not be spent down until after both spouses have passed. Keep in mind that these rules can change at any time, and that’s why it’s important to find an attorney that you can continue to work with to make changes to these trusts as needed.
The attorney we work with meets with our clients periodically to make any adjustments required based on rule changes as they happen. We believe preparing for this now will better set you up for success if there are rule changes in the future.
Setting one up can be costly
The other downside of this type of trust is cost. Depending on who you work with to get it done, the cost can be anywhere from $7,000 to $12,000. The attorney who works with our clients does it for a lower amount since we do not take a referral fee, and we have an exclusive relationship. You’ll likely get the best results when you work with a financial planner who partners with an estate planning attorney to ensure your trust gets done the right way, that you don't get sold something you don't need and that you get the best pricing.
Other planning advantages and opportunities
A Medicaid asset protection trust can also lead to other advantages and opportunities in other areas of planning. For example, we can also use this trust to help plan for estate taxes.
Estate taxes may not be a concern for many people, considering the current high threshold before it kicks in ($13.61 million for 2024). However, the threshold is likely to be lowered in the future. It has, in the past, been as low as $1 million or less, so it’s possible that if your net worth is more than $1 million, you could pay a 40% tax on everything above that in the future.
A Medicaid asset protection trust could help you protect some of those assets by getting them out of the estate so they’re not subject to that estate tax. We do this for many of our clients who have been diligent savers.
Also, with trusts, you can be more creative about ensuring the money goes to the people you want it to go to and when you want it to go to them. For example, if you wanted your kids to get only a certain amount each year for the rest of their lives, then you could have that set up. Or if you wanted a minor child to not get the money until the age of 25, then you could do that also. You could also ensure that if there were a divorce or one of your family members died, that the money stayed in the family.
Those can all be reasons why setting up a trust can make sense. We work with many people in or near retirement who have been diligent savers, but only about half of them need trusts. That's why it's important to do your due diligence and see if this makes sense for your specific situation.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
Related content
- Are You a DIY Retirement Planner? Four Things You Need to Know
- Do You Have the Five Pillars of Retirement Planning in Place?
- Are You Taking Too Much Risk in Retirement?
- Will You Pay Higher Taxes in Retirement?
- Do You Have at Least $1 Million in Tax-Deferred Investments?
-
Kickstart Your 2026 Retirement Plan NowRetirement can feel far-off, or too close for comfort, depending on where you’re at. But one thing’s clear — now is the ideal time to get your retirement plan in order.
-
Four Clever and Tax-Efficient Ways to Ditch Concentrated Stock Holdings, From a Financial PlannerHolding too much of one company's stock can put your financial future at risk. Here are four ways you can strategically unwind such positions without triggering a massive tax bill.
-
Four Clever and Tax-Efficient Ways to Ditch Concentrated Stock Holdings, From a Financial Planner
Holding too much of one company's stock can put your financial future at risk. Here are four ways you can strategically unwind such positions without triggering a massive tax bill.
-
Beyond Banking: How Credit Unions Serve Their CommunitiesCredit unions differentiate themselves from traditional banks by operating as member-owned financial cooperatives focused on community support and service rather than shareholder profit.
-
Answers to Every Early Retiree's Questions This Year, From a Wealth AdviserFrom how to retire in a crazy market to how much to withdraw and how to spend without feeling guilty, a financial pro shares the advice he's given this year.
-
The Risks of Forced DST-to-UPREIT Conversions, From a Real Estate ExpertSome new Delaware statutory trust offerings are forcing investors into 721 UPREIT conversions at the end of the hold period, raising concerns about loss of control, limited liquidity, opaque valuations and unexpected tax liabilities.
-
I'm a Financial Adviser: You've Built Your Wealth, Now Make Sure Your Family Keeps ItThe Great Wealth Transfer is well underway, yet too many families aren't ready. Here's how to bridge the generation gap that could threaten your legacy.
-
Want to Advance on the Job? Showing Some Courtesy and Appreciation Could HelpTwo business professors share their insights about the impact of digital communication on the social skills of some in Gen Z and the importance of good manners on the job.
-
From Job Loss to Free Agent: A Financial Professional's Transition Playbook (and Pep Talk)The American workforce is in transition, and if you're among those affected, take heart. You have the skills, experience and smarts that companies need.
-
A Financial Planner's Top Five Items to Prioritize When Your Spouse Is IllDuring tough times, it's easy to overlook important financial details, but you'll be so much better off if you take care of these things right now.
