1) Guardianship. If one of your parents has dementia or has otherwise lost the ability to make decisions regarding their own care then the law provides for a court proceeding in which your parent’s medical and financial decisions can be made by someone appointed by the court. Sometimes that person is a family member. If the parent has not done proper estate planning, that is has not done a living trust or a health care power of attorney, then it will become necessary for you to file a court action to have your parent declared incompetent. The outcome of the proceeding is that someone is appointed to be the guardian of the person and the estate of your parent. They do not need to be the same person. There can be one person who is the guardian for the person and another for the estate.
a) Guardianship
b) A will does not address mental incapacity because a will is merely a death instrument. It only comes into effect at death. If you become incapacitated your loved would have to file a proceeding in court called guardianship. The court will appoint a guardian, oftentimes a professional such as a bank, even if you have a spouse or an adult child who you would have preferred.
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c) A living trust one the other hand is created and funded now, while you are well so that if you become incapacitated the trust and all of your assets in it come under the control of the successor Trustee. The successor Trustee is someone you picked. The Trustee is authorized to pay your expenses. There is no need to go to court because you have already provided for control over the trust during a period of incapacity.
d) In addition, someone must make health care decisions for you if you are unable to do so yourself. Instead of leaving this to the courts, signing a Health Care Power of Attorney will place the decision making in someone you know and trust.
2) Paying for long term care expenses. Another aspect of disability planning is the need to pay for long term care expenses. According to a Genworth study, in 2008 the average nursing home in Chicago costs $72,567 per year. The average assisted living facility costs $54,089 per year. Home care is between $46,721 and $74,703. For more details to to this link.
a) The least desirable is Medicaid. Medicaid is a solution of last resort. Although the government pays the bills, there is a price to pay. Medicaid will not pay for in home care. It won’t even pay for assisted living. The only thing Medicaid will pay for is nursing home care.
i) Not all nursing homes take Medicaid patients. Those that do only have a certain number of beds for Medicaid patients.
ii) There are many services that Medicaid will not pay for such as field trips to museums, or to see the Chicago Symphony or for manicures etc. All of the Medicaid applicant’s income from social security and pension go to reducing Medicaid reimbursement. They cannot be spent on yourself.
b) The second option is to self insure. This means that when you add up your social security, your pension, your passive income from investments, that you have an ample amount to pay for your care. Of course, if you are married then it is important to make sure there is enough for your care and still sustain the well spouse in a comfortable lifestyle. If you are certain you will be able to do this, then make sure you have a Trustee to pay the bills.
c) The third option is long term care insurance. Long term care insurance has become increasingly popular because it leaves you in control, it pays for in home care which most people prefer and it presents income from other sources from diverted from a spouse’s lifestyle.
i) Long term care insurance has its downsides. One, health problems may make you uninsurable. Secondly, the premiums may not be affordable. If health is not an issue we work together with our clients and their other advisers to find a way to pay for premium without diminishing your lifestyle. For example, reverse mortgages sometimes work in these situations because the money borrowed does not have to be paid back until death.
ii) Long term care as a rider to a life insurance policy. This is a relatively new option. It has a number of advantages. First, your premiums are not wasted if you don’t need it. If you die without ever having used the long term care insurance, your loved ones receive a death benefit. Second, you can get your money back during your life if you have an emergency. Lastly, if you currently own any relatively small life insurance policies, they can sometimes be exchanged for policies that have a long term care rider.
Call 847-674-0200 for a free consultation.
