Preparing for Incapacity is Not Rocket Science
by A. Scott White, CFP®, ChFC, CLU
When we think about estate planning, typically we think about legal documents—not planning for incapacity. But that area of planning is frequently overlooked. After we finish executing all our legal documents with a qualified estate planning attorney, we may assume our estate planning is complete. But as important as a durable power of attorney are recovering from fractured bones as a result of a fall, or you cannot distinguish between your comb and a toothbrush because you are suffering from Alzheimer’s disease, or you are recovering from a stroke and need assistance to take a bath and get dressed?
Frequently our spouse is there to assist us in situations like these. What happens, however, when incapacity strikes the surviving spouse? We may hope a family member will agree to help us out. And this may be a valid plan, articularly if the family member lives in our area, is not employed, and their own children are out of the house. But for my clients living in Florida, this is usually not the case—and even if family members are available, many of my clients choose not to ask them because of the burnout and fatigue that comes with being a caregiver.
When it is not feasible for a family member to help us, then we must seek professional assistance. In Southwest Florida, salaries for home health aides can average over $41,000 a year1 . That expense can easily double depending on the level of care required and if you need assisted living. So then the question becomes, “If I can find a facility accepting new tenants, how will I pay for it?” If you have over $250,000 set aside for care, then you may be able to self-insure. But that savings amount would cover only three years of expenses, so if you need care for a longer period of time, you need to set aside more money to fund it.
One of the most common misconceptions among seniors is that Medicare will pay for long term care expenses. Medicare covers acute care, when you are expected to recover, but it does not pay for chronic custodial care, when you are not expected to get better. Medicare will help pay for a limited skilled nursing facility stay, hospice care or home health care if certain conditions are met, including a prior hospital stay of at least three days, and can pay for up to 100 days of care. But Medicare is not a long term solution.
Another misconception is that Medicaid may be a solution to pay for assisted care. But to qualify for Medicaid, you also have to qualify due to financial need. This means if a couple has an annual income of more than $6,000—or $899 of monthly income—they may be ineligible for Medicaid. Often people will attempt to become poor by giving all their money to their children and friends, only to learn later that there is a 60-month “look back,” and according to Medicaid regulations, your assets include any money you gave away in the last five years when your eligibility is calculated.
As much we may dislike paying for insurance, when deciding how to pay for a professional caregiver, often long term care insurance is the least painful option. While you may spend thousands of dollars a year in premiums for a policy you might not ever need, if it is needed, the cost of the policy is only a fraction of the benefits you might receive. But my caution with long term care insurance is this: No two long term care policies are alike, so when you evaluate policy options, you will often be comparing apples to oranges. A trusted professional advisor can assist you in analyzing the various terms and conditions to help select a policy that is best for you and your family’s circumstances.
Planning for incapacity may sound complicated, but it is not rocket science. You simply need to identify who is going to care for you and how are you going to pay for it. It means knowing what you are going to do in advance, and isn’t that the definition of a plan?
RJFS financial advisors do not render advice on legal matters.
You should discuss any legal matters with the appropriate professional.
1 Genworth’s 2010 Cost of Care Survey, conducted by CareScout®, covering 13,000 long term care providers.
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