Traditional Estate Planning is based on notions that may be out of sync with today’s realities. They deal with the notion that estate planning should be undertaken for the benefit of removing the troubles for the heirs; the assumption being that one will go to sleep and never wake. This article talks about how Safe Harbor Trusts can help with these problems.
Another assumption in the minds of many still is that when they die Uncle Sam will come to claim part of their estate. The reality is that at the federal level this is rarely true today. In 2025, the federal estate tax generally applies only if your estate exceeds about $13.99 million for a single person, or roughly $27.98 million for a married couple with proper planning. At the state level, Washington will exact the estate tax price for any estate that exceeds $3 million per person for deaths occurring on or after July 1, 2025.
Most of us will not have to worry about federal estate taxes. Worrying about heirs is something that is valid. But assuming that we will go to sleep one day and never wake up may not be as realistic today as it was twenty years ago when we were expected to live only a few years in retirement.
Today, thanks to modern medicine and medical advancements, many of us will live many, many years in retirement. For a significant number of us, many of these years will be spent living with debilitating chronic care conditions that will make us dependent on others for our day-to-day living activities: getting out of bed, transferring, bathing, toileting, walking, eating, dressing, etc.
Statistics from the Alzheimer’s Association suggest that one out of eight individuals who turn 65 will deal with dementia-related disabilities; and that number reaches an astounding one out of every two individuals who reach age 85. For a nation where the fastest growing segment of our population is 85-plus, this is not good news. Yet traditional estate planning is largely silent about this issue.
Is there something that can be done about this issue? Can you do anything today to try to protect assets from uncovered long-term care costs that can be quite catastrophic for those who face this situation? The answer is yes.
But only if your goal is to engage in legal planning that will allow you to protect your assets from uncovered long-term care costs over which you may have no control and you care to maximize your quality of life. If these issues are not important to you, tune me out. Otherwise, read on.
To begin with, understand that families that face chronic disabilities will likely encounter bills that exceed their monthly income by a significant margin, eating away at the assets they carefully put away to enjoy in their golden years.
Sadly, the people who are most at risk are those who have estates between $50,000 and $1.5 million. For larger estates, the issue is less about finances and more about managing finances and care needs. For the poor, Medicaid is there to cover their needs.
Safe Harbor Trusts – For the Rest of Us
For the rest of us—those who have worked hard all our lives, avoided buying brand-new cars every year or living beyond our means—we are left with no choice but to spend down our estates. Those who splurged or did not save will qualify for Medicaid. But for the rest of us, the issue is engaging in legal planning that will allow us to access assistance with uncovered long-term care costs so our hard-earned savings do not disappear.
Most of us who have worked hard and saved for our rainy day have two hopes and desires:
- To live our golden years in as much comfort as possible without facing the possibility of going broke.
- To leave a bit of our estate to our children.
However, families who face chronic illnesses—Alzheimer’s, Parkinson’s, stroke after-effects, heart-attack complications—are robbed of these goals. Many in this situation will run out of resources before they run out of life. Many will consider drastic measures such as divorce, legal separation, or gifting assets to children simply to qualify for Medicaid.
Here’s What You Can Do
Much of this can be avoided. Here are your options:
Your estate planning should incorporate the use of a Safe Harbor Trust (a type of Special Needs Trust) in your wills. Traditionally, trusts were used to help families with large estates avoid or minimize estate taxes. For married couples, each spouse can leave an amount equal to the state or federal exemption to anyone of their choosing. Most couples default to wills that simply leave everything to the surviving spouse.
Assume your estate is worth $3.5 million. Under community property laws, each spouse is deemed to own half. Traditional wills leave each half to the surviving spouse, meaning the survivor ends up owning the entire estate.
In classic tax-planning, bypass trusts were used to keep the first spouse’s half out of the survivor’s estate for tax purposes. Today, federal exemptions are so high that few families need tax-driven planning. But the Medicaid rules introduce an even harsher problem for middle-class families.
Safe Harbor Trusts Help With Smaller Estates
The purpose of Safe Harbor Trust planning is to allow a surviving spouse to access Medicaid assistance in the future without being forced to spend down the entire estate.
Medicaid is available only to those with very limited “countable” assets—typically no more than $2,000 for an individual applicant. Traditional estate plans direct all assets to the surviving spouse, leaving him or her with too much to qualify for Medicaid and forcing a spend-down.
If instead the deceased spouse’s half is directed to a Safe Harbor (Special Needs) Trust, the surviving spouse can access Medicaid while at least half the estate is protected. Congress permits this planning—but you must include it in your documents; the government will not do it for you.
Plan Ahead
Most of us name a loved one as our agent under a power of attorney to look after our care needs when we cannot do so ourselves. But think about the burden we impose on them. If you have Alzheimer’s and your agent calls the doctor for guidance, the doctor may recommend nursing home placement because of institutional bias. Is this always appropriate? Are there alternatives? Usually, yes.
This is why your powers of attorney should authorize the use of a geriatric care manager—a nurse or social worker experienced in long-term care systems. A care manager can determine whether you can remain at home, and what interventions are needed, or identify alternatives to nursing homes, such as adult family homes, assisted living, or boarding homes.
Traditional powers of attorney focus on protecting assets rather than quality of life. You can change that paradigm by directing your agents to use your estate assets to hire care-management support so they are not forced to shoulder impossible decisions alone.
Final Thoughts
Are these enough reasons to reconsider your current estate plan? I hope so. See a good elder law attorney (see NAELA, https://www.naela.org/) who is familiar with these issues. Better yet, see one who has walked the walk and cared for an aging parent and has lived the standards you espouse. If you wish to stay at home, see an elder law attorney who has been successful in keeping a parent at home when the doctors and others said that it was time for a nursing home. Ask questions. If you don’t know of such an attorney, you do now. I have walked this walk.