ESTATE PLANNING: How Does Long Term Care Fit In?

INTRO: Life expectancies are steadily rising. Generally, healthier lifestyles and meaningful advances in medicine bode well for this trend to continue. But the elephant in the room is long term care. How are you going to pay for your potential long term care needs?

Many elderly and baby boomers are aware of the potential upcoming challenge but have chosen denial. Others don’t appreciate the importance of planning or don’t think they have the financial means to pay for their long term care needs.

First, it’s important to cover the basic definition of “long term care” in the context of this discussion and identify some myths associated with available payment options. By long term care, I mean custodial (not medical) care – in which one or more third parties are required to provide care for activities of daily living (basic needs), such as eating, bathing, going to the bathroom, etc. – for more than a few months. Such care may be at home, a convalescent hospital, nursing home, an assisted living facility or similar place.

It’s intuitive that if custodial care becomes necessary for a prolonged time, it can get extremely expensive in a hurry. A prevalent myth is that Medicare covers long term care. Medicare Part coverage may apply, but it is very limited – generally only for skilled, not custodial care, and only up to 100 days. So, if you end up needing long term care for more than 100 days, you need to find other resources to pay for it.

Another myth is that Medicaid is always a viable option; often, it’s not. Medicaid (in California, “Medi-Cal”) is available only for those who have low income and meet other eligibility requirements (e.g. having very little in assets, other than a home that may be exempt). Even those who qualify must contribute substantially all of their income as their “share of cost” before the government pays the balance. Additionally, the Dept. of Health Services typically has a lien on assets of the decedent recipient to recover benefits paid out. Many complicated rules apply to Medi-Cal eligibility, recovery, etc., so anyone who wishes to evaluate Medi-Cal as a potential long-term care alternative should obtain legal advice from an elder law attorney experienced in that niche.

Another common misconception is that most people can “self-insure”. A very small percentage of people are in that position. In California, decent custodial care often costs $7,000 to $8,000 per month, if not more. Furthermore, many who are able to self-insure don’t want to risk diminishing their estate so dramatically as to leave little or no inheritance to their loved ones. If one develops Alzheimer’s disease or another form of dementia, a long-term disability could continue for as long as a decade or more. So, it’s many hundreds of thousands of dollars, or occasionally in the millions, could be required to cover long-term care needs.

An alternative that should be explored carefully, particularly among successful baby boomers, is buying private, long-term care insurance. Fortunately, many different kinds of plans are available, enabling you to custom-design your coverage as to how long a period you want to cover; the waiting period before coverage starts; the amount per day that can be paid out; whether benefits are adjusted for inflation, etc. There are also “hybrid” plans that combine life insurance and long-term care. Part or all of the premium you pay is sometimes tax deductible (check with your income tax advisor!).

Finally, people who are convinced their budget will not reasonably accommodate long-term care insurance premiums are sometimes wrong. Satisfactory coverage may be available for less than you think. Furthermore, some clever ways to pay for some or all of your premium may be feasible without reducing your current cash flow. For example, you may be in a position to use or exchange coverage for one or more cash value life insurance policies you no longer need; or withdraw funds from a reverse mortgage.

I am not a long-term care expert nor an insurance agent/broker, but I try to stay educated about the subject and I know a number of seasoned long-term care agents in the area. NOTE: Long-term care insurance is not the right solution for everyone; however, it’s a shame when people ignore the elephant in the room by failing to even explore their options. “Bottom line”, I recommend that you think about the issue; identify your long-term care funding alternatives; and of course, coordinate this with your estate and tax planning.

This article is intended to provide information of a general nature, and should not be relied upon as legal, tax, financial and/or business advice. Readers should obtain and rely upon specific advice only from their own qualified professional advisors. This communication is not intended or written to be used, for the purpose of: i) avoiding penalties under the Internal Revenue Code; or ii) promoting, marketing, or recommending to another party any matters addressed herein.

Mr. Silverman is an attorney with R. Silverman Law Group, 1855 Olympic Blvd., Suite 125, Walnut Creek, CA 94596; (925) 705-4474; rsilverman@rsilvermanlaw.com.

ESTATE LEGAL SERVICES: Need to find an estate planning attorney in Walnut Creek CA? Contact Robert Silverman at 925-705-4474 for legal advice on Revocable Living Trust, Wills, Durable Power of Attorney, Advance Health Care Directive, Special Needs Trusts, and Irrevocable Trusts & Advanced Estate Planning, including Irrevocable Life Insurance Trust (ILIT), Qualified Personal Residence Trust (QPRT), Defective Grantor Trust (IDGT), Grantor Retained Annuity Trust (GRAT), “Crummey Trust”, and various types of Charitable Trusts.