One of the most challenging realities of retirement planning is the risk that long-term care needs in the final few years of life can consume a disproportionate amount of a household’s entire retirement savings. At best, this culminates in a fear that someone might not be able to afford their desired level of care in the later years. At worst, it is paired with the rapid depletion of existing assets, which can impair the subsequent standard of living of a surviving spouse, or ‘unexpectedly’ deplete assets that might have otherwise gone as an inheritance to family members. Yet the so-called “Medicaid planning” tools in the financial planner’s toolbox to navigate this situation can quickly pit competing interests against one another, as strategies that preserve assets for heirs can outright limit the availability of assets to provide for a desired level of care while the individual is still alive. Putting financial planners into the awkward position of crafting recommendations in ethically complex situations.
In this guest post, David Haughton, VP of Estate Planning at Carson Group, explores the ethical dynamics that financial planners must navigate when crafting Medicaid planning recommendations to clients.
The starting point is to recognize that to the extent Medicaid was designed as a needs-based government benefit (i.e., to provide for the care of lower-income individuals who could not provide for themselves), proactive “Medicaid planning” involves finding ways to reduce the assets of the individual who may otherwise need long-term care support, before those assets are otherwise spent outright on care itself. The tools are varied, including transferring assets into Medicaid trusts, or gifting outright to family members, or the use of Medicaid annuities to convert the institutionalized spouse’s assets into the non-institutionalized spouse’s income. But the common thread is that assets no longer held in the individual’s name are no longer required to be spent on care… for which the caveat is that often they literally cannot be spent on care.
