Estate planning and Medicaid planning are two distinct aspects of financial planning. While estate planning ensures your assets transfer to your loved ones the way you want them to after your passing, Medicaid planning aims at protecting your wealth from high medical costs.
Diving into the specifics of each of these will help you better understand their importance and differences.
Estate planning in New York is the process of arranging for the management of a person’s estate. It ensures that upon death, the distribution of assets follows your wishes. This process often includes creating wills, setting up trusts, designating beneficiaries and setting up powers of attorney.
Part of estate planning involves navigating the probate process. Probate is the legal process of authenticating a will, settling debts and distributing the deceased’s property.
Medicaid planning aims at securing your eligibility for Medicaid benefits, which can cover the costs of long-term care. Long-term care expenses can quickly deplete a person’s savings and assets, and Medicaid can provide relief. However, qualifying for Medicaid often requires meeting certain income and asset limits.
Medicaid planning involves structuring your finances so that you meet the income and asset eligibility requirements without having to use all your resources. This could involve using legal financial planning strategies such as transferring assets, setting up certain types of trusts or spending down assets in specific ways.
The big difference
The key difference between estate planning and Medicaid planning lies in their goals. While estate planning aims to preserve your wealth for your heirs, Medicaid planning aims to qualify you for Medicaid benefits by legally reducing your countable assets.
These two planning processes need to work together. Improper Medicaid planning can disrupt an estate plan, while an estate plan that does not consider potential long-term care needs can quickly deplete an inheritance.