Many clients create or revisit their estate plans when
they’re in their mid-60s. Events in those years can prompt the desire to
arrange one’s affairs. Retirement, enrolling in Medicare and qualifying for
Social Security all remind our clients that they’re growing older and that they
won’t be middle-aged forever. Attorneys and other advisors also need to
consider whether their clients are “ready” to enter old age.
Your client can’t avoid physical decline, but he can plan
for it. First, your client should think seriously about where he lives—both
what kind of house or dwelling he lives in and where it’s located. Your client
needs to evaluate whether where he lives now will be a good place to live at
age 75, 85 or even 95. Our clients need an exit plan for the house that they
bought back in the day. They need to start thinking about how to avoid steps,
stop shoveling snow, cease maintaining a yard and not be stressed finding
repairmen to handle an aging house owned by an aging owner.
At 62, your client can claim his Social Security retirement
benefits. Of course, if he does, he permanently reduces them by 25 percent
compared to the amount he would have received at his full retirement age,
currently 66. If your client waits until he’s 70 to claim the benefits, the
amount rises by 32 percent, at 8 percent for each year he defers. At 70,
there’s no reason to delay further because the amount is set for life—except
for possible annual cost-of-living increases. For many, deferring claiming
Social Security past 66 makes sense.
At 65, your client is eligible for Medicare, but Medicare is
a secondary payer for most who are still employed and covered by health
insurance. The employer insurance is the primary payer, meaning that it pays
first, up to the limits of its coverage; only then does Medicare pay for costs
not covered by the primary insurer, if Medicare covers those costs. Still,
your client should apply for Medicare in the months before he turns 65. It costs
nothing to be enrolled in Part A, which pays for hospitalization.
In addition to Medicare, your client will need a Medigap
policy. Medigap policies—Medicare Supplement Insurance—are sold by private
companies but are heavily regulated by federal law. The policies pay some or
all of the health care costs that Medicare Parts A and B don’t cover, such as
copayments, coinsurance and deductibles. Some Medigap policies also offer
coverage for services that original Medicare doesn’t cover, like medical care
when your client is traveling outside the United States. Medigap policies don’t
cover the cost of long-term care (LTC), dental care, hearing aids, eyeglasses
or private duty nursing.
Long Term Care
Medicare pays for acute care, not LTC. Medicare may pay for
up to 100 days in a nursing home (with significant copays for days 21 to 100),
but that’s it. After that, your client is on his own.
There are generally three ways to pay: (1) LTC insurance;
(2) out of your client’s income and savings; and (3) Medicaid.
LTC insurance is expensive and not for everyone. Paying for
LTC out of income and savings is possible, but if your client plans on doing
that, he must recognize that the size of his estate when he passes away may
become significantly smaller. And, while your client may be able to afford
paying for himself, that outflow of funds can greatly reduce the income of his
spouse. It’s not enough just to have sufficient funds to pay for LTC; your
client needs a plan to protect the financial well-being of his healthy
Medicaid is a means-tested program; its rules require a
recipient to become impoverished to gain benefits. To be eligible, your client
must essentially exhaust his savings and devote all his income to the cost of
his care before he qualifies. Couples have a little more leeway to retain
income and assets to keep the healthy spouse from being destitute.
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