When you're contemplating your old age — or caring for someone who is elderly — you first have to focus on three
Consider the following strategies:
- Taking care of oneself and one's possessions. To whom do you wish to leave a particular possession? Ensure that you have a valid up-to-date will or trust documents, and a durable power of attorney for financial affairs.
- Finding ways to discuss financial decision-making. Everyone needs professional information and help.
- Determining how to have enough money to provide care and not leave survivors alone and destitute. You don't want to make financial decisions based on emotion and short-term urgency.
Suppose you have $150,000 in health care bills a year. In that case, there's a good chance your household would owe little or no taxes. This is a good time to accelerate distributions from tax-deferred retirement accounts. Though they are taxed, they're canceled out by deductions for the health care bills. This kind of balance is essential.
Evaluate cash flow needs and remain invested to realize gains on a portfolio that's ultimately dropping in value as you withdraw from it. People think Medicare will cover all their costs, but its coverage is minimal for long-term care: 100 days in a nursing home for rehabilitation. It's not custodial care.
You may decide to look into a home-care program. In New York, for instance, a person cannot have more than a certain amount in savings, but retirement accounts of any value are exempt if they are paying out money. While the distributions count as income, it's a separate calculation.
Find out whether your primary residence is counted in that state for home care. As long as you have less than a certain amount of equity in it, it is not (this amount is updated occasionally). If it's worth more, you can take out a mortgage to reduce the equity.
There is also no "look-back" period on asset transfers, so someone who gave $200,000 to a child one month could apply for New York's home-care program the next. Medicaid has a five-year look-back period. And the asset limits for going into a nursing home in New York are relatively liberal, although, again, there are periodic adjustments.
You can see how complicated this can get. Every state is different, so don't make assumptions. Never make long-term decisions for yourself or a loved one without considering the substantial implications. Call us today to discuss a plan for yourself — or your elderly relations.