March 12, 2021
Long-Term Care Options | How Do We Address Long-Term Care?
How do we address long-term care?
Know the different long-term care options in this episode of Daily Wisdom!
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Long Term Care Options
There’s a couple of options. First, we could self-fund, so we just pay out of our own money. Second, we can look at traditional long-term care insurance. Third, we can look at what’s called asset base long-term care strategies. Fourth, we can look at legal entities. Fifth, we can look at income strategies, where we structure the income to be able to cover long-term care costs.
Self-funding, you have to have the funds to do it. Traditional long-term care insurance, this has a lot of disadvantages now. One is the increasing premiums. The premiums can go up on you at any time. I’ve had clients that bought a policy before working with us, paying it for 20 years at $4,000 a year. Then they increased the premium to $10,000, and you have to decide whether you keep the policy, let it lapse, go in a different direction. Also, there’s no benefit at death. The old paradigm, where these were the only two options.
The Rule of Thumb
A lot of times, there is a rule of thumb where traditional long-term care insurance would be really for individuals who had between 500,000 to 1.5 million worth of assets. Anything less than that, then you need those funds for retirement. Anything more than that, you wouldn’t necessarily need to cover this in terms of an insurance, because with this old traditional, there’s no death benefit. So you could pay on this your whole life, and there be nothing left at the end of the day.
I’m not a big fan, in most cases, of this type of policy anymore. If you have an existing policy, you may want to continue it depending on where you are. But what we do is we figure out a) do we stick with this current policy, or do we look at one of these other options?
Asset base long-term care. This is a strategy I am a big fan of. This isn’t always just about covering the long-term care need. A lot of times it’s about just leveraging your assets, where even if you have say $5 million, you might want to consider an asset base long-term care strategy. If you only have $100,000, you might want to consider an asset base long-term care strategy.
There’s different ways that it could be structured. This is about leveraging your current assets. This could also be something that you pay on over time as well, to fill it up. But really, it’s just a leveraging your current assets to address two things. One that may happen, and the other that for sure, will.
One is you may need long-term care. Three out of four of us will need long-term care at some point, and the average cost of a nursing home right now is $8,000 to $12,000 a month. And that also, you’re going to pass away at some point. We haven’t figured out a way around that.
Number four would be legal entities. This is something that our law practice has spent a lot of time perfecting. We have an asset protection trust, that we move assets into the trust and once we make it five years, everything is protected, from that nursing home or Medicaid spend down. We could put things like your home and investments inside of here. Because Medicaid has a five-year look-back period, everything inside of the trust would be protected.
Then fifth strategy is more of an income strategy, where we look at your income sources, social security, pensions. Then if we can draw on your assets, maybe something like a fixed-index annuity that normally would pay out, let’s say $2,000 per month, but now if you were to need long-term care after two years, then the payout could double to $4,000 per month.
Wait for Only Two Years
The nice thing about this is there’s no underwriting. We just have to wait two years. So even if you had a diagnosis of Alzheimer’s or Parkinson’s or something like that, this would be a strategy to leverage those assets without having to go through underwriting, to create more income, to cover home care, assisted living, or nursing home care.
Those are really the planning strategies as it relates to long-term care. I’m not saying everyone should rush out and drop their traditional long-term care insurance. I’m just saying that typically, it’s not something we’re looking at moving forward for families. If you already have one, I’m not saying, “Drop it.” I’m saying, “Let’s look at the other options.”
One of them might be to keep that traditional long-term care insurance policy, but now there’s new strategies, new options that are available. See if any of them make more sense. Then if they do, then only at that point would we consider dropping that long-term care. Because I always want to make sure you’re in a better spot.