June 29, 2017
I have clients calling me all the time saying
they are thinking about long-term care planning but they don’t know
what to do and maybe they’re too young to do anything.
address the last quandary first. No one is ever too young to plan
for LTC because we don’t know what the future holds. The average age
of someone contemplating and planning for this risk is about 59 yet
I am working with clients in their 30s. The reason for the downward
age shift is that many younger people are seeing their parents or
grandparents deal with a LTC illness and they are concerned about
being able to take care of themselves. Also, the older you
are, the fewer strategies to choose from and they will be more
There is no arguing that LTC planning is
complicated, intimidating and overwhelming. There are so many
options to learn about: LTC insurance, life insurance policies with
LTC or chronic illness riders, wealth replacement strategies, and
Planning for LTC is one piece of an
overall retirement plan and a team effort. You should seek advice
from an estates and trust or elder law attorney along with
recommendations from your financial adviser and accountant.
Whatever you do, don’t listen to anyone who tells you that you don’t
need a plan. Will they come up with $144,000 a year for your nursing
home care, make sure that the standard of living of your
spouse/partner is not diminished if assets are spent for LTC or
leave a legacy for your family? Planning is essential. Your health
insurance will not pay for LTC — and Medicare reimbursements are
limited and Medicaid requires that you spend your assets down to be
Do the math. If you were in a nursing home paying
$12,000 per month for three years, your total expense would be
$432,000. For five years, it would be $720,000. In an assisted
living facility, it would cost approximately $180,000 for three
years based on $5,000 a month or $300,000 for five years. Home care
costs about $25 an hour. If you had eight hours of care per day for
three years, your out-of-pocket expenses would be $218,400.
So what can you do? Let’s look at a few of the strategies named
A Medicaid Irrevocable Trust allows you to shelter
your assets from a Medicaid spend-down. Medicaid requires that your
assets be in a trust for five years before you can apply for
Medicaid in order to avoid a penalty period. This type of strategy
should be considered if you have a substantial amount of unqualified
money (stocks, bonds, etc.) or real estate (your home, vacation home
or rental property). Qualified funds such as pensions and IRAs
cannot be placed in a trust.
The simplest approach to
planning for LTC is still a LTC insurance policy. These policies
offer the most robust benefits and ease of design. You can select a
NYS Partnership plan if you would like to ensure total or partial
asset protection or a traditional policy that has more riders,
enhancements and couples’ benefits.
LTC insurance will help
you stay out of a nursing home. You can gear the benefits toward
home care and assisted living. If your estate is mostly comprised of
qualified money, once it is in payment status, it is not susceptible
to a Medicaid spend-down should you enter a nursing home. Most
individuals are staying at home for as long as possible. Consider
placing your house in an irrevocable trust and purchase a LTC
insurance policy geared toward home care. The premium will be much
Reposition your assets by purchasing a life
insurance policy with a LTC component known as a hybrid. You can
leverage the death benefit with a rider to pay for your LTC
expenses. If you never need LTC, your family will inherit the death
benefit tax free. It’s a win-win strategy.
A fourth option
would be wealth replacement in the event assets are spent on LTC.
For example, Mary is 65 years old and in good health. She transfers
$75,000 into a single premium life insurance policy that buys her a
death benefit of $221,782 and then transfers her policy out of her
name. She leveraged her $75,000 preserving a legacy for her family
and replacing the funds she might spend on LTC. This strategy does
require satisfying the five year lookback period for transferring
ownership of the policy.
The best way to get on the right LTC
planning path is to mark off the strategies that don’t interest you
or are not in your best interest. Work with a professional team.
Good things are sometimes hard to accomplish. LTC planning is a good
thing even though it initially may be hard to do.