Blogs

As you age, it becomes increasingly important to plan for the complexities of Medicare and how Medicare-related expenses may impact your life and finances. While many financial advisors understand the importance of incorporating Medicare planning strategies into clients’ overall financial planning strategies, this aspect is often overlooked by estate planning attorneys when implementing clients’ legacy strategies. This oversight can lead to significant long-term estate planning repercussions for clients.

Here, we consider Medicare’s impact on estate planning and offer insights to help ensure Medicare strategies are incorporated into your overall financial and legacy strategies.

Medicare refresher

It may be helpful to begin with an overview of the different types of Medicare and their associated expenses.

• Part A, hospital insurance – Part A covers the cost of inpatient stays, short-term skilled nursing facility care, hospice care and certain home healthcare-related expenses. Most people who paid Medicare taxes throughout their careers do not pay extra for Part A coverage.

• Part B, medical insurance – Part B covers doctors’ services, medical supplies, preventative services and outpatient care. There is a monthly premium for Part B coverage, which is determined based on your income.

• Part C, Medicare Advantage – Part C is an alternative to Medicare that is offered by private insurance companies. These plans are often used to supplement Parts A and B coverage with vision, dental and/or prescription drug coverage.

• Part D, prescription drug coverage – Part D helps cover the cost of prescription drugs. Provided by private insurance companies, these plans require a monthly premium payment.

In addition to premiums charged by the various types of Medicare coverage, you may be subject to out-of-pocket expenses such as deductibles, co-payments and coinsurance.

How Medicare expenses impact estate planning decisions

It’s important to work with an estate planning attorney who understands how Medicare-related decisions can impact your estate planning strategies. For example, high out-of-pocket healthcare costs, such as premiums and deductibles, have the potential to deplete the assets available to pass down to your heirs.

In addition, there are significant healthcare-related expenses that are not covered by Medicare. For example, while Medicare Part A and B include some coverage for short-term skilled nursing care, Medicare does not cover the cost of long-term care. Based on 2024 rates, the average annual cost for a private room in a nursing home facility is $127,750. The annual cost for an assisted living facility averages $70,800, and the annual cost for a home heath aid averages $77,792 .¹

If you’re not planning for these expenses, you may end up depleting your assets significantly sooner than you anticipated.

It’s wise to work with a financial advisor and estate planning attorney to incorporate additional Medicare planning strategies, such as insurance or annuities, to provide an additional level of protection for your loved ones.

Strategies for incorporating Medicare planning into your estate plan

There are several effective strategies for incorporating Medicare considerations into your overall estate planning strategies.

• Estate planning documents – It’s important to consider Medicare and other health-related expenses as you establish your estate planning documents. Your Medicare decisions may impact the provisions of your will, trust, powers of attorney and more.

• Long-term care insurance – If your financial goals include leaving a lasting financial legacy for your loved ones, it may make sense to invest in long-term care insurance (LTCI). Be sure to work with a qualified financial advisor who can help you choose a LTCI policy that makes sense for you.

• Life insurance – The proceeds from a permanent life insurance policy can support your heirs should you end up depleting your assets sooner than expected. Life insurance can also provide liquidity to help your loved ones cover estate tax liabilities, funeral expenses, outstanding debts and more.

• Annuities – An annuity is a contract offered by an insurance company that guarantees a series of regular payments in exchange for a premium payment. Annuities are generally used by retirees to establish a regular source of income throughout retirement. An annuity can help cover your living expenses, including Medicare and other healthcare-related costs, while preserving your assets and allowing them to grow and compound over time. The remaining assets can then be passed on to your heirs following your death.

• Health savings account (HSA) – HSAs provide an opportunity to save for retirement healthcare expenses while you’re still working. There are several distinct tax advantages to contributing to an HSA.

1. Contributions are made with pre-tax dollars, which reduces your taxable income during the year in which they are made.

• Assets held within an HSA grow tax deferred.

• When used to pay for qualified medical expenses, withdrawals from HSAs are tax exempt.

• When made via payroll deduction, HSA contributions are not subject to Social Security or Medicare taxes.

• Even though they are tax-deferred assets, HSA accounts are not subject to required minimum distributions (RMDs).

• Unlike contributions to flexible savings accounts (FSAs), there are no restrictions on the amount of HSA contributions that can be rolled over from one year to the next. This provides a great opportunity to accumulate assets throughout your working years.

It’s important to note that HSAs are only available to individuals participating in a high-deductible health insurance plan (HDHP). Your employer can provide additional information about your eligibility.

Could you use some help incorporating Medicare considerations into your estate plan? 3C Wealth Management is here for you. Please schedule a call to learn more.