By Brian M. Johnson
Our country is going through a dramatic demographic shift. Baby boomers are now turning 65 at a rate of 10,000 per day. With this comes planning considerations we must address to protect those we love and the assets we’ve worked for. With proper planning, generational wealth can be created and preserved; however, most people fail to address risks.
One risk that will impact nearly all of us, and potentially decimate the savings of millions of Americans is the need for extended health care or long-term care. We hesitate to use the words “long-term care,” as most associate those with nursing homes. The stark reality is that 80 percent of care is received either at home or in the community, and it’s often provided by family members or other informal caregivers. This raises a few questions:
• Do I want to burden loved ones with my care or would I prefer they supervise the care?
• Do I want to stay home as long as possible?
• Do I want to protect my assets for my children, grandchildren or other philanthropic causes?
• How long can I afford to pay for care out of pocket and how would those costs impact my priorities?
Most reasonable people would opt to receive care in home or assisted living as opposed to a nursing home. Most would not want to burden their children or grandchildren. Most would want to see their assets be passed on to family members or a charity, rather than spent on their health care.
Most would agree that a long-term care event of $300,000 or would put a significant dent in their savings or wipe them out altogether.
Another question we should ask ourselves is what are the consequences to my spouse, my children, and my grandchildren if I needed extended health care? Would your spouse be able to continue his/her standard of living if savings were spent on the healthcare of one spouse?
Planning in advance is the most self-less thing one can do. We work diligently, save and plan for retirement; however, we must protect that planning we are doing. At the end of the day, if we need care, those that love us will step up to the plate and help out. However, is that what we want? If the answer is no, then there are some basic steps you can take now to protect your family and assets later.
A first step would be to consult with an elder law or estate planning attorney that will help you identify which assets might be at risk and assist with you with basic advance directives (health care proxy, power of attorney, will and/or living trust). These documents help to ensure your wishes are followed and make decisions and transactions much easier for your loved ones should someone need to act on your behalf.
A second step would be to address your healthcare funding options such as Medicare, Medicaid, personal savings and insurance.
First off, Medicare does not pay for long-term care. Medicare typically covers maintenance care, and does not pay for care that lasts longer than 100 days.
To qualify for Medicaid, one typically needs to be at the poverty line, as it’s a welfare program. Personal savings and insurance are the two sources that pay for much of the long-term care, especially if one wishes to stay home or in the community, such as an assisted living facility.
Long-term care insurance has long been payer of long-term care services, and while it’s still a valid way to insure some of the risk, many clients opt for a secret that few people know about. This “secret” is permanent life insurance with living benefits.
Whole life or universal life insurance provides a family with a solid financial foundation. These life insurance policies offer a multitude of benefits when designed properly, offering not only death benefit protection, but tremendous leverage and the ability to enhance an estate far beyond its present value. Some benefits of permanent life insurance include, but aren’t limited to:
• Cash values that grow tax-deferred and can be accesses tax-free through taking loans against the policy. In fact, fixed, permanent life insurance policies like whole life is one of the few asset classes that actually had a positive return during the 2008-09 recession.
• Waiver of premium is a feature that will continue to the pay the premiums if the insured becomes disabled.
• Limited payment options—policies can be paid up in one payment, over 5 or 10 years or designed to paid-up by retirement age, 65.
• An accelerated death benefit rider at no cost—if one needs long-term care, the death benefit can be accelerated during the insured’s lifetime to pay for home care or institutionalized care.
Many clients view life insurance as commodity that should be used only when their children are young and the house has a mortgage. History’s most affluent figures have used life insurance as a tax efficient vehicle to transfer wealth to the next generation.
Lucky for us, today’s permanent life insurance policies offer that same leverage, but with the added benefit of being able to use the death benefit while we are alive so we have options for our health care, and to protect our wealth and the ones we love.
Already own permanent life insurance? Often existing whole or universal life policies can be exchanged, using IRC 1035, tax-free for a new policy that includes valuable living benefit features. If one is averse to needles, and is 65 or younger, applying for $500,000 or less of benefit, certain companies no longer require blood / urine in order to apply, making this powerful tool even easier to add to your estate.
Knowledge is certainly power; and educating yourself on options and formulating a well-coordinated plan is what allows us to retire securely and confidently.