IV.Financial Planning

Asset-Protection Planning

While part of the discipline of estate planning, asset protection is focused differently:

Because of the way the spend-down laws work for Medicaid eligibility, people must consider their financial security ­in light of the potential of a disability or need for home care or facility care. In addition, married couples must protect their mutual financial independence. Many families are concerned about protecting a legacy for their children and/or grandchildren. Every situation has its unique considerations. The information that follows serves as a framework for discussion and planning considerations. (It is always wise to consult with an elder-law attorney for Medicaid-based asset protection planning.)

  1. You may consider gifting assets to your family as long as the gift is completed 5 years in advance of a Medicaid application for care benefits.
  2. You can purchase long-term care (LTC) insurance with an inflation rider; however, costs have risen substantially over the last 15 years, and insurers reserve the right to raise rates once policies are in force.
  3. Some people can purchase group LTC protection. Home care is generally 60- to 70-percent of facility care rates, and inflation protection is generally not available.  Also, premiums are not guaranteed and may be raised on a class basis.
  4. Combining life insurance with a LTC rider and some type of LTC insurance can offer flexibility.  Life insurance with a LTC rider allows access to a percentage (often 2-percent) of the face amount per month during one’s lifetime once the LTC benefit is triggered. Triggers are typically based on the industry standard that identifies two of six impaired activities of daily living (ADLs).  The policy will pay a benefit one way or another, but no inflation protection is available.
  5. Survivorship, or joint-life converge, is a type of leveraged life insurance on two lives used for wealth replacement, which is related to asset protection.  The cost can be attractive when compared to LTC insurance coverage. It is a useful tool for estate preservation.
  6. Various annuities in the marketplace also have a variety of LTC riders.  Some pay additional income in case of a LTC-qualifying event. Others are a type of “sinking fund” that may be drawn down to pay for the cost of care or services.
  7. Tail Risk is something retirement income planning considers, because it is possible for people to out-live their money. Using a deferred income annuity, one can leverage an investment and receive payments to defray the cost of care or to alternatively enhance one’s income later in life.
  8. Today, gifting strategies need to consider the Medicaid rules, which include a 5-year lookback.  Completed gifts may be subject to Medicaid estate recovery rules known as “claw backs.”  Gifting strategies, including using a life insurance/survivorship policy in an irrevocable trust, can be a cost-effective way to protect assets from LTC expenses.

We believe it is appropriate to consider your family’s total net worth and factor in expected inheritance in this type of planning. Because LTC expenses can seriously erode the value of your estate and potentially lower the standard of living for a spouse, asset protection includes incorporating LTC protection in your planning. Further integration suggests that one look ultimately at wealth transfer to the next generation.