Planning for long term care can pay big dividends if you plan ahead. We’ve all heard the numbers, approximately 10,000 baby boomers reach retirement age each day. For individuals over age 65 there is a better than 70% chance they will need some type of long term care services during their lifetime. With the cost of in-home, residential and institutional care rising at an annual rate of 4.5%, the cost of care for older individuals is worrisome.
At the same time long term care demand is rising, it’s become both more difficult and more expensive to buy long term care insurance. Since 2010 three major insurers, MetLife, Prudential and Unum have stopped selling long term care plans in the individual market. Those companies, such as Genworth, that still do sell in the individual market have raised rates significantly.
Early planning can protect significant assets and pay big dividends. Generally, younger, healthier individuals in their 50’s and 60’s pay lower insurance premiums than older individuals or those with physical or mental ailments. A story on CNBC.com earlier this year discussed an 85-year old who purchased long term care insurance at age 70. The total premiums were about $20,000 and her policy was capped at a total payout of $100,000. Not the best scenario. However, she has now received most all of her benefits from her policy. It doesn’t take a math wizard to realize that she got back roughly five times the amount of her initial investment. But more importantly, she has yet to have to tap her retirement assets to cover her living and care expenses. Had she obtained her policy earlier in life, the return may have been better.
Still many people fear paying years of premiums only to not be able to use the policy. For those individuals there are new hybrid insurance policies that combine life insurance with long term care insurance. Often if there is any unused long term care benefit, it can get paid upon death of the insured.
Other individuals may have issues with the rate of return on insurance products, the availability of the proceeds at a later date, an inability to pay the premiums, the fear of increasing premiums or some other objection.
Yet there are still asset protection techniques available. One common technique is a “safe harbor” trust included in the Wills of a married couple. In this instance, upon the death of one spouse, assets flow into a trust for the surviving spouse. If the surviving spouse needs long term care, those assets will be protected from creditors and, more importantly will not be counted against the individual if he or she applies for Medicaid or VA benefits to cover the cost of long term care. Keep in mind that these trusts are written with specific language necessary to enable compliance with the applicable laws.
Another possible technique is to create an irrevocable trust while an individual is living. Such a scenario may be used if an individual is widowed or unmarried. Here especially, careful analysis of all the facts and circumstances of an individual’s medical, housing and financial situation must be made to determine if this technique will work for the individual, or if a better option is available. In short, don’t try this at home! Consult with a qualified attorney.
If you would like a long term care policy reviewed, or would like to discuss other planning options to protect your assets from creditors and the cost of long term care, we’d love to hear from you.
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