To fully understand the importance of disability planning, you have to digest some information about government benefit programs and long-term care expenses.
Most seniors will qualify for Medicare coverage. This is a government health insurance program that is in place to provide coverage for senior citizens. You earn eligibility through the accumulation of retirement credits. The annoying FICA tax that comes out of your paycheck is not all bad, because you are paying into Social Security and Medicare.
During the rest of 2016, you earn one retirement credit for every $1260 that you earn. The maximum annual accrual is four retirement credits, regardless of the extent of your earnings.
Once you have 40 credits in the bank as it were, you will qualify for Medicare when you reach the age of eligibility. At the present time, qualified individuals become eligible for Medicare coverage when they reach the age of 65.
Limitations of Medicare
Medicare will certainly help with your health care expenses, but you should not overestimate the value of Medicare coverage. There are deductibles, co-payments, and premiums that must be paid, and you should certainly keep these out-of-pocket costs in mind when you are creating a retirement budget.
In addition to the out-of-pocket expenses, there is a very big gap in Medicare coverage. Medicare does not pay for custodial care. This is the type of care that you would receive in a nursing home or assisted living community.
You may be under the assumption that it is unlikely that you will ever need long-term care. Unfortunately, the statistics tell a different tale. According to the United States Department of Health and Human Services, 70 percent of people who are turning 65 will eventually need help with their activities of daily living.
Indeed, it is likely that you will someday require living assistance, and it is very expensive. The national average annual cost for a private room in a nursing home is in excess of $90,000, and people often spend multiple years in these facilities.
Many people aim toward Medicaid eligibility when they learn about the limitations of Medicare. Medicaid will pay for long-term care, but there are income and asset limits, because it is a need-based program.
You could potentially give assets to your loved ones so that you can qualify, but you must act in advance, because there is a five-year look-back. The divestitures must be completed at least five years before you apply, or your eligibility will be delayed and money will be coming out of your pocket if you need long-term care.
Advance Directives for Health Care
Most people have heard of the document called a last will. Because a last will is used to facilitate asset transfers, you may assume that a living will does the same thing.
In fact, a living will does not have anything to do with financial matters. You would use this type of will to state your preferences with regard to the use of life-sustaining measures.
Physicians can sometimes use these measures to keep people alive for long periods of time, even when there is no hope of recovery. When you have a living will in place, medical professionals would follow your instructions if you were to become unable to communicate your choices in real-time.
If you execute a living will, you can be sure that your own true wishes wishes will be carried out if you ever become unable to communicate life-support decisions. Plus, family members will have no cause for disagreements.
Another advance directive for health care that should be part of your incapacity plan is a health care proxy or durable power of attorney for health care. You empower someone to make medical decisions on your behalf with this document.
Revocable Living Trusts & Disability Planning
Unlike a living will, a revocable living trust is a vehicle of asset transfer. The person creating the trust is called the grantor, and in most cases, the grantor will choose to act as the trustee and the beneficiary at first.
To facilitate postmortem asset transfers, you would name a successor trustee and a successor beneficiary if you were to create and fund a revocable living trust. You could name someone that you know to act as the successor trustee, but you could alternately use a professional fiduciary like a bank or a trust company.
The successor trustee could also be given the power to administer the trust if you ever become incapacitated, so there is a disability planning benefit.
Contact Our Firm
If you would like to learn more about disability planning, contact us through this page to set up a consultation: Annapolis, MD Disability Planning Attorneys.
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