Ep. 29 - Comprehensive Estate Planning Guide - Part 1: A

Welcome to the Good Steward Law and Wealth Podcast, where host Ledly Jennings explores law and finance to help listeners become better stewards of their wealth. Each episode covers the latest trends and strategies in estate planning, elder law, investment, and wealth management. Tune in for the knowledge and tools for financial success and security.

Welcome back to the Good Steward Law and Wealth Podcast. Glad to have everyone here. And this is a continuation episode of part 1 that I previously did on the parts of a good estate plan. And this is still really part 1. We'll call it, you know, 1A. How do we plan for paying for our time and incapacity? We talked about how you plan for incapacity previously. And again, I want this to be kind of an evergreen episode that you can reference back to and listen to these in order as a whole, because this is exactly how I go over things with my clients when we, they when they first come in and schedule a meeting with me, this is how I break it down. You know, once we start talking about how do you— what documents do I need to prepare for incapacity, they're always like, well, how do I pay for this? And is the nursing home going to take all my stuff? You know, is my house and personal stuff going to go to the nursing home? So that's what I want to hit on today, is the answer to how we pay for it. So why people are concerned about this is the pure cost of it. Long-term care. And there's this study you can Google, uh, Gen Wealth, I think, has the study out recently that the average cost of care for like in-home care, assisted living, is around $5,000 a month. And then that jumps to about $10,000 a month if you're going to full-fledged nursing home care, you know, like, you know, a private room, full-fledged care. And obviously it's very expensive, and, you know, rightfully so. It may be expensive for a specific reason because you really, you think about it like rent You, when you go to long-term care, full-fledged nursing home care, you're paying for your room, your board, your meals, your care, nursing care, all of it. It's all included. And that averages out to maybe, let's say, about $250 a day. And if you really think about it, you can't get a hotel room that's, you know, a nice hotel room for less than $250. And even then, they don't even include the meals. Sometimes they might include breakfast, but they don't include the meals. So Really, it's just like paying rent, but you get a lot of benefits from it. Even that, it's still expensive and people want to plan for how they pay for that $10,000 a month. And really, this varies by where you live. If you're in a rural area, you may be, it may be a lot less expensive than whether you're in New York City or Dallas or whatever it may be. It just depends where you are. We're lucky in the areas that I practice that we have some really high-quality nursing homes., in assisted living facilities. I always love sending them to Wentworth or Summit here in my South Arkansas area for the full nursing home care, um, Duttonywood for assisted living. So shout out to all those because they're really high-quality facilities and their staff is really great to work with. But the fees vary, and all this varies on, you know, where you are and, uh, where you're going. So When we think about planning for how do you pay for this, I look at it as a holistic perspective because as a lawyer, people come to me usually when it's too late and they're already in the nursing home. And then my job is strictly how do I save what you got right now, get you on Medicaid. Um, that's my job. And so it's kind of cut and dry. Sometimes people come to me earlier and we can do some pre-planning for how do we prepare for this. And usually when that comes into play, it needs to be with the financial financial advisor and the attorney, or sometimes they office together, or sometimes the attorney is the financial advisor. But you're really doing holistic planning because you're looking at how do we private pay, or how do we prepare for the future cost of long-term care. There's 3 options for how you pay for it. One is private pay, two is long-term care insurance, and three is government benefits, which is typically Medicaid. We'll spend some time on the private pay aspect. That just means you are paying out of pocket without trying to qualify for a government program and you don't have insurance. So private pay, I've seen it a lot where people can easily private pay for their care because really when you sit down and think about it, let's say you worked your whole life, you've saved up, you have max Social Security, uh, let's call it $3,500 a month in Social Security, then that gets you over a third of the way there for the cost. Maybe you have a pension that can cover the rest. And you just have to come up with $1,000 or $2,000 a month, and that can come out of your retirement accounts, IRAs, whatever it may be. Generally, you need to think about— you subtract Social Security from the monthly cost, and then what's left, you can look at your investment accounts and say, hey, can I invest this and have enough interest to pay for my long-term care? For— I usually ballpark about 5 years at the longest case. Sometimes it can go a lot longer, but that's usually what we ballpark when we're planning. And how you pay for it, where the money comes from, is really important. And this is what a lot of my practice is shifting toward focusing on now, is actually advising clients on where to take the money from to pay for this care. Um, because a lot of clients— let's say a typical one that I see— maybe you have $500,000 in like a joint brokerage investment account, regular account, but your retirement is maybe you have $3 million in an IRA. Where do you pay for this from? Now, the typical advice would be to say, well, let's not touch that IRA because that's taxable income. You know, you need to pay for it out of that investment account that you have. But really, if you think about it, medical expenses are deductible. So your nursing home and long-term care costs are deductible. So my advice usually is to take your IRA and the taxable income from that and pay for your care with that because you spend taxable income on things that you get tax deductions for. So essentially it washes out. But think of that example where dad's in the nursing home with that $500,000 account, a $3 million IRA. He's in there for at least 2 years. Then the son's trying to plan for, well, how do I pay for this? And then what do I think about what's left? How would I rather inherit? When you think about these families, and this is very common, when mom or dad's 80, 85, kids are usually 50 range, 50s, 60s, and they're in their highest earning years. So they're in the highest tax bracket. And the bad thing about IRAs is when you inherit an IRA, you have to withdraw it all within 10 years. So that means the kid is going to have to start withdrawing that IRA at the highest tax bracket. It's like you're losing 30% right there. So why not use that IRA to pay for the care if that's the option you have. And you can look at the end of the year, when you get closer to the end of the year, you can do some tax planning and you know your deductions, you know where you're at on income, and maybe you talk with your accountant and say, hey, we've got these deductions, we need to pull out some more money. You can take out another $5,000 from the IRA, put in another account 'cause it's better to inherit that way. And you've done your job because mom or dad is in the 0% tax bracket 'cause they've wiped out all their income. Then why not take out, you know, as much of the IRA as you can? Because then it would be taxed at the lowest to zero tax bracket rather than your highest tax bracket. So that goes into a lot of the details. And I hate getting in the weeds sometimes, but sometimes you need to at least understand the broad concepts that this is the type of planning that comes into play when you do long-term care planning is picking out which assets to pay for in the most tax-efficient manner. And that's what we do. Um, so that generally, that is private pay. The next one is long-term care insurance. I won't spend a ton of time on this one because it's not my expertise, and I don't come across it a lot nowadays when you have the decision whether to buy or not buy. It used to be really, really popular, and then all of a sudden the, the policies became unaffordable for the insurance companies, and then therefore the price became unaffordable. For the buyers of them, so we didn't see them as much, although they are making a comeback now. And I hope to have an expert on here in one of the coming episodes to kind of explain all this to us in more depth. But really, the long-term care insurance is just a financial decision to where does the premium cost make sense for me to put this money in an insurance policy or for me to just invest it in let it grow and pay for my care that way. So it's just kind of an analysis that we run. But I would let you know that there's two types of long-term care insurance. You know, just the insurance that you pay the premium, you get the product. But there's also a life insurance policy with a long-term care rider. The benefit of that is you can purchase life insurance, so there's a death benefit, and if you use the value of it for long-term care, great. If you don't, then your kids or beneficiaries still get something. So that could be beneficial. That's somewhat of a newer way to do it, but it also depends on your type of assets. You know, if you've got a lot of cash, 401k, whatever it is, it usually doesn't make sense to insure your cash with cash. You know, if you can pay for it, just pay for it and don't purchase something with a premium. Because I've seen a lot that I do see now is people with long-term care insurance, and it is an extreme hassle to get the company to pay for the care. They send you forms and forms and stacks of paper to fill out and certify that, yes, I do have this disability or this incapacity and I'm getting these services. In fact, there's a whole industry now around people that are long-term care advocates that you can pay to advocate on your behalf to fill out all these forms. So that's another downside of the insurance is it's a, it's a hefty process. To get the benefits. And usually when you're trying to get the benefits, you're not in, you know, the best position mentally or physically to be doing all this work. So if you've got the cash, it usually makes sense to avoid long-term care insurance. Now, other assets— maybe you have real estate, or maybe we've made gifts to trust— that's where long-term care insurance makes sense to cover that, because you can't easily liquidate real estate all the time to pay for care. So maybe you insure your real estate with the cash insurance and it makes sense then. Um, but that's kind of the other option. I'd just say if you want long-term care, find an insurance professional to give you options, but also have attorney, financial advisor review and look at it from your holistic perspective as well. Now the third option, and is the bulk of my practice when it comes to this, is Medicaid planning, some call it crisis planning. Government, basically the government pays for your care. This is where people get confused when they say, I don't want the nursing home to take my stuff. Well, the nursing home doesn't want your stuff. All they're concerned about is getting their rent and they're getting their rent from Medicaid if Medicaid's paying the bill. Now, Medicaid may take your stuff. It's called MERP, Medicaid Estate Recovery Program. That is where You think of Medicaid like a loan. So the government's loaning you money to pay for your care, but when you die, they want to get their money back. So that is where the estate recovery program comes in, is how they get their money back. And that's where clients come and say, hey, well, I want to make sure my house is at least protected. And I always say, to get on Medicaid, you have to almost be broke. You know, you can't have more than $2,000 to your name. It's more if you're married, but generally you can't have more than $2,000. But they let you have a house and a car. So when you have a house, they let you get on Medicaid, but they will put a lien on it to recover when you die unless that account is not in your estate. I mean, unless that house is not in your estate because it's Medicaid estate recovery programs, they can only recover from your estate. So there are types of deeds that we can do to protect your house and get it out of your estate without any lookback period. A lot of people make gifts to get qualified for Medicaid, and there is a lookback period on those gifts of 5 years. So if you gift within 5 years, they still consider it yours and they apply a penalty period. So that's part of the calculation when I get people qualified. But just know you can protect your house easily with a special type of deed. The types of deeds vary by state, so come see me and it's a real simple thing to do to protect your house. And check out a previous pod that we did on crisis planning where I go into this. And I'll say, so to get you qualified for the rest of this, if you have more assets than your house, you still have to be under $2,000. And that's where I come in as an attorney is how do we gift? How do we move? How do we purchase various annuities to get you qualified for Medicaid? We advise on that. But some people look at this and say, well, it seems like you're just kind of cheating the system to get people qualified on welfare and you're finding loopholes in the tax law. Well, it's not a loophole. I don't use that term. What we do is use the law. I mean, when you file your taxes, you can take deductions for your childcare. You could get credits for various things. You can deduct the interest on your house. That is because that's what the law allows. That's what the government and the legislators who set it up wanted it to say. So we just advise people on how to use the law. We are not finding any loopholes. We look at it and it's black and white in the intent for how they set it up and the intent on why they set it up. They're very clear that they want you to be able to get on Medicaid, but you have to follow these certain criteria. And that's what we do is advise you on that criteria and how to use the law. So that's really the philosophy behind it. And some people think about it because you paid into Medicaid your entire life. You put money into it from your check, but you also saved and worked diligently and had investment accounts and retirement accounts saved up. So just because you worked diligently and saved your money doesn't mean you shouldn't be able to use the program that you paid into. So that's another kind of ethical reason that we do estate planning. Now, I do have a line personally where if you have a certain amount of net worth, we don't need to be doing estate planning. I mean, Medicaid planning, you need to be talking about how do you pay for it privately in the most efficient manner. So I do have a line on that, but it just varies. That's something I'll talk with you about. But that's how you get on Medicaid is we move assets around to get you qualified. So that's the third form of how you pay for incapacity, and that's the important portion of part one of an estate plan. So The rest of these parts will have part 2 and part 3 on how you leave things, how you avoid probate, and how you leave things in a protected manner. So check back on the rest of these, this series. But it's important to listen to all these in chronological order so you can get an idea of what we're planning for and the nuances behind it. And thank you for listening to the Good Steward Law and Wealth Podcast, where we consider everything a gift, and it's our job to the best with it that we can. Thank you.

Thank you for tuning in to the Good Steward Law and Wealth Podcast. If you're ready to take control of your financial future, visit goodstewardfirm.com to book a meeting and sign up for our newsletter.