It is important to consider two different scenarios when planning for retirement and drafting an estate plan. The first thing is to consider what will happen to your estate after you die. However, the second is to consider what will happen to your estate if you live a long life but are not in the best of health and require permanent assistance from others. Creating a comprehensive estate plan can help prepare for both of these scenarios by protecting assets that can either be passed down to heirs or used if you become disabled and need long-term support.
The Need to Plan for Long-Term Care
Most seniors drafting an estate plan today ignore the biggest risk to their estate – needing money for long-term health care. According to the U.S. Department of Health, over 70% of our country’s population over the age of 65 will need some type of long-term care, and more than forty percent will need nursing home care for some period of time.
Many people do not have the insurance coverage for this type of risk, and Medicare does not cover long-term care. If care is needed, those that did not plan for this type of event rapidly deplete their savings and homes are sold in order to cover the costs. Estate planning solutions exist that can protect the assets, income, and home of a person while still allowing for access to long-term care programs like Medicaid.
Long-Term Mistakes to Avoid
When creating an estate plan that accommodates for both possibilities, it is important to avoid some common long-term mistakes. Many people make these mistakes because they are only thinking in terms of their heirs and not of themselves.
· Don’t tie up money in long-term investments.
· If considering long-term care insurance check the benefits, the inflation rider, and any possible increases in premium.
· Make sure you have the proper advance directives in place, specifically a health care proxy and power of attorney.
· Put someone knowledgeable in charge of managing all real estate.
· Take advantage of possible penalty-free transfers when applying for programs like Medicaid or spending down for nursing home care.
· Don’t stay in an investment that should be sold just to avoid capital gains taxes, especially if you need money for long-term needs.
How to Avoid Long-Term Mistakes
An experienced estate planning or elder law attorney will be able to go over your estate plan and look for any major long-term planning errors. In addition, the easiest ways to avoid making these types of mistakes is by checking the following:
· Plan for liabilities and expenses that can be foreseen, especially for long-term care.
· Update beneficiary designations on bank accounts, investments, retirement funds, and insurance policies
· Take steps to avoid confrontation and potential litigation among family members and other heirs. Using a trust or will with specific instructions can be very helpful.
· Draft and update your estate plan with an experienced attorney. Downloading estate planning documents off of the internet may not comply with your state law and cannot give you proper advice.
· Transfer real estate to heirs through the estate plan and avoid making transfers during your lifetime to avoid high capital gains taxes.