Calculating Health Risks Into Your Estate Planning

Calculating Health Risks Into Your Estate Planning
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Mike Valles
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As you grow older, the chances of developing health problems increase. Although you may be someone that will be unaffected by serious health issues, you can never count on being of sound health and mind until you die. Your estate planning should include the possibility of various health risks in which you may no longer be able to make decisions for yourself.

The current condition of your health and age should play a part in your financial planning. If you have health conditions now that are likely to cause an earlier death, or if you are at high risk for a serious health condition, you do not need as much money saved for later years. At the same time, you may need larger sums for health care and possibly long-term care. It is especially true if you do not already have health insurance for specialized conditions or life insurance policies.

Health Insurance Costs

Treatment for some conditions can sometimes go on for years, and someone must pay what health insurance does not. Calculating the possibility needs to be included in your risk management plans because any unpaid bills at the time of your death will come out of the estate before being dispersed unless you prepare for it.

Life Insurance Can Make a Difference

If you are at high risk for developing a particular health problem or disease or already have one, you may want to consider buying life insurance while you can. If you wait until you have the disease, it may be almost impossible to get life insurance or to get it at a reasonable price. The younger you are when you buy life insurance, the less expensive it will be. Life insurance proceeds can ensure that your loved ones have quick access to cash and the money does not have to go through probate.
You also want to ensure that you have a good health insurance policy, one that will not nickel and dime you to death with co-pays and out-of-pocket expenses. Having the wrong health insurance policy means less money goes into your estate.

Consider Long-Term Care Insurance

Long-term care insurance provides coverage when you need to go into a nursing home or similar arrangement. It is less expensive when you buy the policy at a younger age, preferably in your forties or fifties.
Getting long-term care in a nursing home is very expensive. AnnuityExpertAdvice says it can cost over $9,000 per month, depending on the type of care needed.

Medicaid Long-Term Care Requires Spending Down Your Assets

If it becomes necessary for you to go into a nursing home or a similar facility and you plan to use Medicaid to pay for it, there are limited income and asset requirements. You will need to spend down your assets before receiving any benefits.
The American Council on Aging reports that for 2023 you cannot earn more than $2,742 per month, but your spouse’s income is not counted if they are not applying. There is also an asset limit of $2,000 in most states.

Your primary residence does not count as an asset if you continue to live in the home or intend to return to it. There is also an equity limit on the home, which ranges from $688,000 to $1,033,000, depending on your state.

With the right type of financial planning, you can protect your assets from the spend-down requirement. The assets have to be removed from your possession and control, such as an irrevocable trust would provide.

If You Are Already Diagnosed With a Critical Illness

When you have been diagnosed with a critical disease that may affect your ability to make decisions, Forbes advises that you get your estate planning documents drawn up immediately. Having your documents drawn up for failing health purposes is necessary to protect your assets and health.

Putting Money Into a Trust

There are different kinds of trusts, and if you choose to create one, you must have one that best suits your intent to pass on your assets safely. Money put into a trust is not taxed when a contribution is made, but all earnings are taxed. It can also protect assets from creditors.
Interest rates for trust earnings are high. SmartAsset says that earnings over $14,451 in 2023 are taxed at 37 percent when withdrawn. Grantor trusts are controlled by the trust creator, and they pay all taxes. In simple and complex trusts, the trust directly pays all taxes.

Testamentary Capacity

When making a will and other estate-planning documents, you must create them when you are of a sound mind. Soundness is not determined by age, but most states require you to be 18 years or older to enter into contractual agreements. The Legal Information Institute says that capacity requires knowing what assets you have, who you want them to go to, and the ability to create a plan to disperse them.
If your health is poor and if it could affect your mental health (dementia, Alzheimer’s, or Parkinson’s), it is best to get your documents in place quickly. You may need to have a mental capacity test to ensure that the issue does not provide a cause for contesting your documents later.

The Trust Protector

Trusts, particularly revocable trusts, can be used to keep information from the public. Once you become sick and unable to make your own decisions, it becomes necessary for another person to manage your assets in the trust for you.

Even though you may have given that person power of attorney, Forbes suggests you may want an independent CPA to act as a monitor. You can also have the person caring for the trust provide annual (or more often) reports to the CPA for accountability. This person may also have the power to remove and appoint a new person to handle the money in the trust, if necessary.

A good wealth-management plan can help you retain much of your wealth and pass it on successfully. You will need an estate-planning attorney to guide you through the intricacies of the law and its frequent changes.

The Epoch Times Copyright © 2023 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
Mike Valles
Mike Valles
Author
Mike Valles has been a freelance writer for many years and focuses on personal finance articles. He writes articles and blog posts for companies and lenders of all sizes and seeks to provide quality information that is up-to-date and easy to understand.
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