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Whether or not your client will ever need nursing home care, long-term care (LTC) planning is a vital part of estate planning. LTC planning changed dramatically in August 1993 with the passage of the Omnibus Budget Reconciliation Act of 1993 (OBRA). Although most planners thought OBRA was a change in the tax law, it actually contained changes in the law that will alter the term "Medicaid planning" for years to come.
Studies have shown that more than 40 percent of Americans who turn 65 this year will eventually enter a nursing home. For most, the stay will be measured in months; for others, years. In addition, the number of people 65 or older will increase to more than 50 million in the next 25 years. If the numbers themselves are not staggering, the cost of nursing home care will be.
BECOMING MEDICAID POOR
Some of those who enter a nursing home will lose their savings and investments paying the bill for nursing home care. Others will pay until their assets are exhausted, then turn to Medicaid for assistance. Many will rely on Medicaid from the beginning. Still others will rely on LTC insurance.
Questions about Medicaid and long-term care come from two directions: from the parent and from the children. And they seem to come from two distinctly different points of view. The first comes from clients who have saved all their lives to provide themselves with quality care and treatment in old age. They want to maximize the use of their assets to provide that care for life.
Clients are concerned they will run out of assets, but they are willing to spend their last dollar on the day they die and accept that plan as a success. These clients are further concerned that they not become a financial burden on their children.
Children sometimes approach this dilemma with the same feelings. They don't mind spending their parents' assets, but they are unwilling or ill equipped to bear the financial burden of caring for their parents with their own resources. Again, the child's goal is to maximize the parents' assets and provide them with the best possible care. The child is not worried about an inheritance, only about the parents.
The second type...