Maybe you’ve gotten to the point that you’ve read so many articles, been to so many seminars and heard so many different viewpoints about transition planning that you have “paralysis by analysis.”

This “paralysis” and confusion is completely normal. It often happens when families try to use general examples, memorize some laws and implement an example strategy with their own special situations. Sound familiar?

If you are in the dairy and agriculture industry, you are all too familiar with risk and risk management. It is an important consideration, not only in business but in life. Many have a plan until they hit an iceberg, but a plan ignoring risk is not a plan at all. That’s why I wanted to give you some options on dealing with one of the biggest risks associated with farm transitions – the risk of nursing care costs.

This is not the most fun topic to talk about; I totally understand that. Nobody likes to talk or think about it. If you think I enjoy talking about it and being the “doom and gloom” guy, you are mistaken. However, if you wish to safely pass your assets on and preserve your legacy across multiple generations, then I think it’s worth the temporary discomfort. I actually make it a point to spend a great deal of focus on this topic in consultations with clients, especially farmers. After a bit of explanation, I think you will understand why.

Farming is not like other occupations. The type of work can be physically taxing, especially dairy farming. (One can only imagine the number of squats a dairy producer has done up and down after decades of milking in a stanchion barn.) This type of physical labor generally can do two things: Keep you in good shape and overall health or wear out your joints, especially the knees.

This can be a perfect recipe for needing extended nursing care. Why, you ask? Well, if you’re a physically active farmer who has maintained good health, chances are you will “wear out” over a longer time period in your elder years and need some care.

On the other side of the coin, if you were in a sedentary profession your whole life, chances are you will not be in as good of shape. With that comes a higher chance of passing away from a sudden event, such as a massive heart attack. If you’ve ever been to an assisted living nursing home and talked with some of the residents, you will soon realize that many have had a physical career or were physically active in their lifetime.

With this inherent risk, farmers should have a multitude of questions. Addressing all of the questions that come up would require an encyclopedia-sized book. However, I will try to address two of the most popular inquiries I receive:

‘What are my chances of actually needing nursing care?’

To put it briefly, 58 percent of men over the age of 65 will need care for an average of 2.2 years. Conversely, 79 percent of females over the age of 65 will need care for an average of 3.7 years. Now remember, this is the overall national average, not the probabilities for farmers specifically. However, knowing these averages can help put your risk into perspective.

‘Why should I worry? The state will cover my costs.’

In order for your state (or Medicaid) to cover the cost of care for you and your spouse, your spouse and household will have to be under a certain threshold for asset valuation and have a limited monthly income. Medicaid’s purpose, in a nutshell, is to provide health care for “low income and low net-worth” families.

In most states, the 2015 “maximum monthly maintenance needs allowance” is $2,980 per month. The “maximum resource standard” for community spouse resources are assets under $119,220. There are many more complexities to Medicaid and qualification, so be sure to include a professional on your “team” who is well-versed in this area of estate planning and elderly care.

Qualifying for Medicaid and the “loopholes” surrounding the protection of assets are becoming a major topic among politicians. With the national debt climbing exponentially and the continued annual budget shortages, politicians are setting their sights on controlling Medicaid costs, especially with the large baby boomer demographic aging.

Consider these statistics: Medicaid currently accounts for about 12 percent of the total national budget, greater than $450 billion annually. Additionally, there are 10,000 new baby boomers turning 65 every day. That trend will continue for 20 years. Lastly, nursing care costs can average between $5,000 and $8,000 monthly, with annual expenses expected to increase 5 percent per year. If this rate holds constant, monthly nursing care costs could approach $20,000 per month in just a couple decades.

So what does this mean to you? Well, with some rough math, we can figure there could potentially be 73 million baby boomers over the age of 65 in 20 years. If we assume only half (36.5 million) of just baby boomers need only one year of care, it could amount to $8.76 trillion in nursing costs. You can see the concern. With the potential liability the government could incur, the benefits available through Medicaid may decrease or qualifying for the program could be much more stringent. Considering all of this, the “loopholes” for protecting assets from nursing care costs may start to close in the future. So what are we to do?

There is no perfect catch-all plan or solution for this potential risk. Whether people in the past have decided to pay out of pocket, insure against the risk, gift away assets years in advance, utilize legal planning or other strategies, each option or combination of options will have pros and cons. Therefore, it is wise to seek advice from multiple professionals who can share ideas from different points of view. Once you have a direction identified or implemented, be sure to have regular reviews to ensure your plans are relevant to any changes in financial circumstances or legislation.  PD

Jon Holthaus is a financial planner based in Wisconsin and serves clients in the U.S. and Canada.

References omitted due to space but are available upon request. Click here to email an editor.

• Jon Holthaus

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