To begin with, get Mom set up on a five year plan

Dear Michael: Our mother has just entered a rehab facility and it looks like she will be entering a nursing home or assisted living after she leaves the rehab portion of her care. She has a home of approximately $400,000 and liquid assets of almost $550,000. She has a long-term care policy that pays around $2300 per month for long-term care.

We have not done any long-term care planning, so the entire estate is still in her name. What should we be doing to protect both Mom and the estate from the costs of long-term care? – Too Late to Plan?

Dear Too Late to Plan: Is it too late to plan? That is somewhat difficult to determine, and you will not know for the next five years.

What you can plan is the mathematical equation of how much Mom is going to need for the next five years.

When she gets to the assisted living facility, they will give you an "estimate" of what they think it is going to cost to take care of Mom. Different factors determine how high (or low) this monthly amount is going to be. By far and away, the factors are based on how much "physical" assistance your mom is going to need.

Things like can she feed herself, can she get to the bathroom herself, dress herself, has continence, and can move from chairs or beds to standing (known as transfer), then the cost of care should not be very high.

However, if she cannot perform some of these activities, then the calculator starts rolling. How many people does it take to feed her, change her, etc?

In any case, you will get an estimate of the cost of care for Mom. With this information, you can multiply this cost by five years. You might also add a five percent inflation to the number each year to keep it accurate.

Next, you add up all of Mom's income sources – Social Security, pensions, passive incomes, and you should come up with a monthly figure. Compare these two side by side and see how much you come up short.

Now take all her investments and see what kind of income they produce. If the income produced fills the void, you are golden. Use a four percent multiplier to determine income. With $550,000, this would produce $22,000 per year. (Many clients want to use five percent return but remember five percent has only been paid since the Fed raised interest rates to slow inflation. As little as two years ago, CDs were paying under one percent).

The long-term care insurance policy is going to be a little tricky. If your Mom just feels better about being in an assisted living facility but can handle all the activities of daily living, then the long-term care insurance will not pay for her care.

If she cannot do two out of five of the above mentioned activities, then it is likely the long-term care insurance would kick in. The best thing to do is contact the insurance company and determine how and when she will receive benefits from her insurance. You may be $2300 short on your computations if Mom is still capable. If not, you can add this amount to her monthly income.

It is always a good idea to take all of Mom's assets – proceeds from the sale of her home, her investments, etc. – and put it into a trust in the name of the children. These funds can then be used to pay for Mom's care. Any income generated from the trust paid towards her care would be deductible over seven percent of her income.

This trust is very simple. All income generated and a portion of the assets goes towards Mom's care. If Mom should die, the trust releases these assets to the heirs and the trust is done. If Mom lives past five years, any assets not spent on her care can be retained by the trust as it will be five years past the lookback period.

The tricky part is managing the ups and downs of her care costs. She may not qualify for insurance benefits right now because she is able. When she becomes unable to manage herself, the insurance will kick in, but will it be enough to offset the costs the facility will charge? Every month is going to be a guess. Facilities now charge monthly and can change monthly.

Do the best you can and see how it works out!