Run the Numbers: LTC Should Be Part of Estate Planning Even for Wealthy

Outstanding article considering the risks of needing Long Term Care and the costs involved. With the chance you may need extended Long Term Health Care being so high, that cost can have a huge impact on an estate even if you have a fairly large estate . Top financial advisors suggest Long Term Care Insurance be part of plan even for wealthy as the numbers make sense.

The reason many people don't plan is they think they will never need care. Not sure why they think they are special. Some people joke they will just die ... others think they are too "healthy". Both comments are naïve. The U.S. Department of Health and Human Services tells us if you reach the age of 65 you will have a 70% chance of requiring a Long Term Health Care service before you pass. If you are young and healthy ... guess what ... you will live a long life. Live a long life and you will have age related issues. Remember, people need Long Term Care due to illnesses, accidents or the impact of aging.

Here is part of the article and clink the link for the full article.

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  By Ed McCarthy, CFP, RICP

The widely held belief that wealthy persons don’t need long-term care insurance because they can self-fund the cost may be correct regarding out-of-pocket care expenses but it overlooks the risk of potential estate shrinkage. “The amount of what’s left of your estate is going to be impacted if you and/or your spouse needed long-term care for any period of time and had to draw down your estate,” said William R. Borton, CLU with W.R. Borton in Marlton, NJ. “So, from a standpoint of long-term care planning, not only do you want to make sure you have all the [estate planning] documents in place, but you also want to make sure that you don’t end up with estate shrinkage if you don’t want it.”

Consider a simple example of LTC’s potential impact. The Genworth 2015 Cost of Care Survey reports that the current national median expense of a private nursing home room is $250 per day or $91,250 per year, an amount that’s been increasing by about 4 percent annually for the past five years. If the client is age 65 now and requires that level of care in 20 years, the first year’s cost will be about $200,000 (at 4 percent annual inflation). Assuming a four-year stay, the total outlay would exceed $850,000.

Run the Numbers

Of course, an objective analysis would also consider the impact of paying LTCI premiums should the client decide to purchase the insurance for ages 65 to 85. Sontag Advisory in New York City provides that type of analysis when it discusses LTC planning with wealthier clients. Kevin Couper, CFP, a financial advisor with the firm, said they run simulated scenarios to project the impact of buying and not buying LTCI.

“We can simulate that out and say, well, if you don’t have any insurance at all, here’s what happens to your portfolio, is that a significant deal?” said Couper. “Also, the big thing to notice is how their portfolio is structured. Do they have a lot of liquidity or is a lot of it non-liquid like in real estate so in the event of a long-term care situation would they have to liquidate some things?” To date, their high net worth clients have been comfortable with LTC’s potential impact on retirement cash flow and portfolios and have decided to self-insure the risk, he said.

Using Trusts

In cases where a wealthy client decides to purchase LTCI, buying and owning a life insurance policy with a LTC benefit through an irrevocable life insurance trust (ILIT) can leverage the financial benefits, said Kim Natovitz, CLTC with the Natovitz Group in Bethesda, MD. The strategy works when the policy’s LTCI benefit is paid on an indemnity basis versus a reimbursement plan. The mechanics are somewhat complicated but essentially the insured funds the trust with irrevocable gifts. In turn, the trust applies for and owns the life policy on the insured.

If the insured incurs LTC expenses, he or she pays them out-of-pocket but the trust files for and receives the benefit payments. “The trustee can choose to file a claim and benefits are paid on an indemnity basis, which means that regardless of actual utilization, as long as that individual is receiving qualified long-term care services, then the trustee of the insurance policy can file a claim and long-term care benefits are paid into the trust at that point in time,” Natovitz said.

full article here: http://longtermcareplanningnews.com/article?article=122

 

 

#LTC #longtermcare #estate #retirement