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Estate Planning

Long Term Care – the Shark in Estate Planning

By December 21, 2011No Comments

Elder Couple - Law Offices of Max Elliott

Long term care insurance (LTCI) is often on the minds of those entering or considering retirement. This is also an important issue to consider when thinking estate and financial planning. The reasons are plentiful, petrifying, and probably why thinking about the topic is not on anyone’s top 10 list of fun things to do.

  • If long term care insurance isn’t purchased but is needed, life and retirement savings can evaporate, leaving huge bills and burdens for loved ones, including taking a hefty bite out of your estate assets.
  • If long term care insurance is purchased but is not needed, money that could have been used as retirement income is gone.

Those are just 2 key quandaries. Yet, despite the quandaries and the upset stomach this issue causes, we believe in “eating frogs first” and with sufficient information to make the best decision possible under the circumstances.

The following are a few critical points to mull over regarding LTCI:

  • In the U.S., people are living longer, which means that the cost of living is higher for us than for our parents and grandparents. However, while we are living longer are we living better? Well, that depends on your family medical history, which is the first step in considering whether you should invest in LTCI.  If you’re in your 40’s with a family history indicating folks living well into their 80s laughing and without major illnesses or dementia, you might consider an alternative to manage any long term care issues that you might surprisingly experience. Conversely, if you’re in your late 50’s with a family history rife with Alzheimer’s or strokes, it may be more probable than not that you need LTCI. So not only do you need a physical, but your family’s medical history also needs examining…and the history of your spouse or partner’s family.
  • After considering the family medical history, the next issue is family finances. LTCI isn’t getting any cheaper; quite the contrary. Over the last several years premiums have skyrocketed, which is in part a result of the increased cost of long term care. This website provides the average cost of long term care for all of the states, including Illinois. In Illinois, the average monthly cost of long term care can be more than $5,000/month. Annual premiums to cover this are thousands of dollars. Add to these factors the time value of money premise and inflation, and you have an expense that is unlikely to decrease. So how’s your financial situation faring?
  • Well, let’s say that your health is good, but your family history is a little questionable and your finances are better than most – you were on the rare winning side during the Great Recession. Therefore, you’ve decided to hedge your bet and buy LTCI. The next issue you’ll confront is that most reputable insurance companies no longer carry LTCI. It became too costly for them. A few do, but the field has narrowed considerably over the last decade.*

What if none of this sounds particularly palatable to you? Are any alternatives available? Yes and generally with caveats:

  • Other investment vehicles. An instrument that provides supplemental retirement income may be set aside strictly for long term care needs. However, unless you’re purchasing something such as a fixed return annuity and purchase it at a young enough age, the risk of not having enough funds is genuine because most investments carry with them the downside of losing money.
  • Medicaid. Illinois has a Medicaid provision that will pay for long term care. However, the state will want its money back at the end and will take it out of deduct it from your estate if necessary. See Illinois Long-Term Care Partnership Program Act.
  • Family and Friends. Seriously?
  • Social Security. Really? It is doubtful that SS benefits will be sufficient to cover long term care needs.

Consequently, the decision to buy LTCI should be given serious deliberation by you,  your partner/spouse, and your estate and financial planning team. A strategy that combines insurance with alternatives may be the most efficient way for you to manage this issue. However, what is most important is that you recognize you need a strategy and devise one, sooner rather than later.

Please don’t wait until a loved one is on the other end of our phone line listening to us say it’s too late to do anything that isn’t costly.

*The sites listed here are not indicative of any kind of endorsement. They are provided strictly for information purposes.

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