Long Term Care Planning Options

In this video we’re going to discuss the options of how one can address long -term care planning. Now that we have discussed when to know whether you should self -insure or do some long -term care planning, I want to describe the options that one has when they’re retired or leading into retirement to plan properly for a long latency approach.

And I describe this as if you’re using a safe withdrawal rate in your portfolio, this is going to result in inheritance. And it’s either an inheritance to the government because you end up needing long -term health care. If this happens, 100 days get discovered through Medicare, assets get used, and not the best scenario because the government wins and that they achieved the possession of your assets before their money kicked in from Medicaid perspective.

It also means that your quality of care is simply not good. It’s government -run. If hopefully you don’t need a long -term health care and retirement, that means there may be something left for your kids, charities, or spouse when you pass.

That’s the first option and that’s the default option for many. The second option would be to buy some type of insurance. It’s really in my mind there’s four types of insurance that are applicable for one’s long -term health care planning.

The first kind is a traditional long -term care policy. A traditional long -term care policy works similar to term life insurance or your car insurance. It’s something you pay into if you never need it. You’re never going to see that money back.

So it’s a use it or lose it proposition. If you lose it, obviously there’s a negative return there. If you use it and you fund it, let’s say until your age 80, usually the return is quite good. It’s between 8 to 12 percent.

So it’s a worst case. We waste all our money. Best case, we’re not going to do a hybrid policy. There are companies that will offer a single payment into the policy. As a result, they will triple or sometimes go up the six times the amount that you put in in the event that you need a long -term care claim.

Something to watch out for in these policies is that sometimes they’ll pay out over six years. Well, most people won’t receive long -term care for six years. In fact, an average female stays about 3 .9 years and average male stays three years.

We want to structure the benefit period in this type of policy is worth paid out quickly. If there’s a half a million dollars available in that pool of money, we want to make sure you can get it within three years or else potentially half the money would be wasted.

These are great for simplicity. They’re not great if you don’t need it. What it happens if you don’t use it for long -term care is usually you have a CD -like return in a death benefit that would go to your espouser kids.

A lot of these do have an option where you can surrender part of the money out, 80%, sometimes 100% of the money out. If you have that option, you are going to give up some of the returns potentially on the long -term care side or the death benefit side.

The third option is what we refer to as whole life insurance with a long -term care rider baked in. This would work. You would fund a monthly or annual premium. You have a death benefit that’s guaranteed for life.

You can structure a payment period over 10 years, 20 years. You can pay on it for life, the longer you pay, the lower that is. This will build a cash value. We would recommend a mutual company that pays dividends that are participating in to reinvest those.

With this type of policy, you really have three options. One, we can use the cash, the stock market’s down. Two, the death benefit will protect you, your children, your spouse, etc.

Three, you can use the death benefit directly if a long -term care claim arises. To qualify for any of these two out of your six activities of life, a doctor has to sign off on that. If that’s the case, you have direct access to the death benefit.

It comes out tax -free, so it avoids that tax or charge in the event that you need a long -term care claim. The other option is what’s called a guaranteed universal life policy. A guaranteed universal life policy is something that’s guaranteed to an end date in the future.

Generally, I recommend you choose a late age, like 121, for example. This is similar to the whole life except it doesn’t have the cash value. Generally, the death benefit will stay flat, depending on which option you choose. What you pay into it will be smaller and you can also structure this to be paid off in 10 years, 15 years, or you could pay it for life.

For the flexibility, a lot of younger clients will like the whole life, the flexibility of the cash. For cash full purposes, if you’re entering retirement trying to do this planning from the get -go, typically the guaranteed universal life with the long -term care option is attractive because of the lower payment.

Interestingly enough, I’m a big nerd. In the one and done policies, from a death benefit perspective, we see about a one and a half percent return. From a long -term care perspective, we see a seven percent return.

This is all depending on health status. In the whole life, we see a death benefit and long -term care because they’re one and the same. Generally, it’d be about four to five percent. In the universal life, we also see about four to five percent with the guaranteed universal life having a high return initially in the whole life, catching up eventually.

You pay a little bit up front for this flexibility to have that cash value. Those are all options on the table. We would recommend to really evaluate this on a case -by -case basis. Maybe doing nothing is in your best interest because you are on track to be self -insured or you already are self -insured.

Maybe considering a insurance policy is in your best interest because you have the cash flow to fund it. You want the peace of mind to have a tax -free chip on the chips off the table, not tied to the stock market that you can pay for long -term care.

The worst scenario we’ve seen is where someone has just about them right amount of assets, but then suddenly they go to long -term care. The stock market’s down, so they’re pulling out of the loss and tax brackets are high, which means they’re paying extra while it’s low and extra taxes.

That perfect storm, which we’ve seen many times in the past, these type of plans could really take the stress off of those situations. Worst -case scenario though, if you don’t end up using these, not in the use it or lose it proposition, but in the we’re going to get something back no matter what, whether we die, cash it out, or use it for long -term care.

If you don’t end up using it for long -term care, keeping the money in the stock market will lead to a better return historically. Like I described, 4 -5% returns, stock market, diversified portfolio, we’re assuming 7%.

So just to offer some perspective, if you use it, if you don’t use it, I think a financial plan is meant to support each other. A good plan can get you through a bad time and having both combined, depending on your situation, can lower risk and also maximize your peace of mind.

The third and final option is for trust or lifetime gifts. This is a figer look back, and we’re not talking about revocable trust because revocable trusts are great to have for reasons like avoiding probate privacy reasons, carrying on your wishes long after you pass.

A revocable trust stays in your estate, and it does not protect your assets from the government looking at them if you need a long -term care event. So we’re talking about irrevocable trust, which go outside of your estate. If you give an irrevocable trust, that’s the same thing as essentially giving money to someone else now.

And on either one of these, there’s a five -year look back, and currently there’s an exemption limit of 11 million and change, 11 .5 million and change, of what you can give while you’re living or when you die completely tax -free. If you’re intending on giving money to your kids or you want to leave some type of legacy, a trust that’s irrevocable can make sense.

If you’re in the self -insured category, a trust may or may not be necessary. It may be a luxury, but not a necessity. If you’re going to have the money regardless. Lifetime gifting for kids is a good option.

You can give away 15 ,000 per parent per kid. So, a married couple with three kids, they could give away 30 per kid or get $90 ,000 off of their balance sheet, transfer to their kid’s name now. We often find that lifetime gifting maximizes conversation.

You’re allowed to pass your values onto your kids and teach them how your hard work and your savings and disciplines, how you got to your network and then see how they respond to that today. That allows you, if it’s five years in advance of receiving a long -term care, it completely protects those assets.

It starts a good conversation and allows you to see your kids how they respond to the money rather than waiting 20 or 30 years. We want to tailor make that plan for you and based upon your philosophy.

This is meant to be educational only and we believe that everyone’s circumstances are unique and a plan should be based upon your philosophy and your philosophy only. And we’re here to support that. Please call or reach out if you have any questions.