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Long-Term Care Planning Checklist

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General information Yes No N/A
1. Has relevant personal information been gathered?
• Name
• Date of birth
• Legal state of residence
• Health status, including medications being taken
• Marital status
• Family members available for support
• Name, phone number, and address of attorney, physician, geriatric care manager or other advisor
2. Has financial situation been assessed?
• Income from Social Security, pension, employment, or other source
• Expenses
• Assets
• Liabilities
Notes:
Long-term care planning Yes No N/A
1. Is the need for long-term care imminent?
2. Are assets sufficient to cover long-term care needs?
3. Have ways to fund long-term care been reviewed/evaluated?
4. If homeowner, has home equity as a use of funds been discussed?
5. Are long-term care insurance benefits available?
6. Have various housing options and their costs been considered?
• In-home care
• Living with a relative
• Continuing care retirement community
• Assisted living
• Nursing home
Notes:
Insurance planning Yes No N/A
1. Is adequate health insurance available?• Medicare
• Medigap
• Private health insurance
• Prescription plans
2. Have Medicaid planning goals and strategies been considered?
3. Has Medicaid qualification criteria been discussed?
4. Has the need for long-term care insurance been established?
5. Is long-term care insurance coverage available to the client?
6. Have existing long-term care insurance policies been reviewed/evaluated?
7. Does long-term care insurance coverage need to be upgraded?
8. Do long-term care benefits need to be accessed?
Notes:
Estate planning Yes No N/A
1. Has long-term care planning been coordinated with estate planning needs?
2. Have appropriate estate planning documents been prepared?
• Will
• Trust
3. Have advanced medical directives been prepared?
• Durable power of attorney
• Living will
• Health-care proxy
4. Have letters of instruction been prepared?
5. Has this information been communicated to family members?
Notes:
Other Yes No N/A
1. Has the need for organizing important documents and records been discussed?
• Bank account records (statements and passbooks)
• Monthly bills to be paid
• Stock certificates, bonds, and other investment records
• Retirement plan statements
• Real estate deeds, mortgages, and other property ownership records
• Vehicle titles
• Business agreements
• Insurance policies
• Will, trust, advanced medical directives, letters of instruction, and other documents
• Birth certificate, marriage certificate, divorce decree, military service papers
Notes:

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What It Means to Be a Financial Caregiver for Your Parents

If you are the adult child of aging parents, you may find yourself in the position of someday having to assist them with handling their finances.

Whether that time is in the near future or sometime further down the road, there are some steps you can take now to make the process a bit easier.

Mom and Dad, can we talk?

Your first step should be to get a handle on your parents’ finances so you fully understand their current financial situation. The best time to do so is when your parents are relatively healthy and active. Otherwise, you may find yourself making critical decisions on their behalf in the midst of a crisis.

You can start by asking them some basic questions:

  • What financial institutions hold their assets (e.g., bank, brokerage, and retirement accounts)?
  • Do they work with any financial, legal, or tax advisors? If so, how often do they meet with them?
  • Do they need help paying monthly bills or assistance reviewing items like credit-card statements, medical receipts, or property tax bills?

Make sure your parents have the necessary legal documents

In order to help your parents manage their finances in the future, you’ll need the legal authority to do so. This requires a durable power of attorney, which is a legal document that allows a named individual (such as an adult child) to manage all aspects of a person’s financial life if he or she becomes disabled or incompetent.


A durable power of attorney will allow you to handle day-to-day finances for your parents, such as signing checks, paying bills, and making financial decisions for them.


In addition to a durable power of attorney, you’ll want to make sure that your parents have an advance health-care directive, also known as a health-care power of attorney or health-care proxy.

An advance health-care directive will allow you to make medical decisions according to their wishes (e.g., life-support measures and who will communicate with health-care professionals on their behalf).

You’ll also want to find out if your parents have a will. If so, find out where it’s located and who is named as personal representative or executor. If the will was drafted a long time ago, your parents may want to review it to make sure their current wishes are represented.

You should also ask if they made any dispositions or gifts of specific personal property (e.g., a family heirloom to be given to a specific individual).

Prepare a personal data record

Once you’ve opened the lines of communication, your next step is to prepare a personal data record that lists information you might need in the event that your parents become incapacitated or die.

Here’s some information that should be included:

  • Financial information: Bank, brokerage, and retirement accounts (including account numbers and online user names and passwords, if applicable); real estate holdings
  • Legal information: Wills, durable powers of attorney, advance health-care directives
  • Medical information: Health-care providers, medication, medical history
  • Insurance information: Policy numbers, company names
  • Advisor information: Names and phone numbers of any professional service providers
  • Location of other important records: Social Security cards, home and vehicle records, outstanding loan documents, past tax returns
  • Funeral and burial plans: Prepayment information, final wishes

If your parents keep some or all of these items in a safe-deposit box or home safe, make sure you can gain access. It’s also a good idea to make copies of all the documents you’ve gathered and keep them in a safe place.

This is especially important if you live far away, because you’ll want the information readily available in the event of an emergency.

Don’t be afraid to get support and ask for advice

If you’re feeling overwhelmed with the task of handling your parents’ finances, don’t be afraid to seek out support and advice. A variety of local and national organizations are designed to assist caregivers.

If your parents’ needs are significant enough, you may want to consider hiring a geriatric care manager who can help you oversee your parents’ care and direct you to the right community resources.

Finally, consider discussing the specifics of your situation with a professional, such as an estate planning attorney, accountant, and/or financial advisor. Click here to get more information from our affiliate company PLJ Advisors.

 

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A Woman’s Guide to Health Care in Retirement

At any age, health care is a priority. But when you retire, you should probably focus more on health care than ever before. That’s why it’s particularly important for women to factor in the cost of health care, including long-term care, as part of their retirement plan.

How much you’ll spend on health care during retirement generally depends on a number of variables including when you retire, how long you live, your relative health, and the cost of medical care in your area. Another important factor to consider is the availability of Medicare. Generally, you’ll be eligible for Medicare when you reach age 65. But what if you retire at a younger age?

You’ll need some way to pay for your health care until Medicare kicks in. Your employer may offer health insurance coverage to its retiring employees, but this is the exception rather than the rule. If your employer doesn’t extend health benefits, you may be able to get insurance coverage through your spouse’s plan. If that’s not an option, you may need to buy a private health insurance policy (which could be costly) or extend your employer-sponsored coverage through COBRA.

Medicare

As mentioned, most Americans automatically become entitled to Medicare when they turn 65.


In fact, if you’re already receiving Social Security benefits when you’re 65, you won’t even have to apply—you’ll be automatically enrolled in Medicare. However, you will have to decide whether you need only Part A coverage (which is premium-free for most retirees) or if you want to also purchase Part B coverage.


Medicare Part A, B, C

Part A, commonly referred to as the hospital insurance portion of Medicare, can help pay for your inpatient hospital care, plus home health care and hospice care.

Part B helps cover other medical care such as physician services, laboratory tests, and physical therapy.

➢ You may also choose to enroll in a managed care plan or private fee-for-service plan under Medicare Part C (Medicare Advantage) if you want to pay fewer out-of-pocket health-care costs.

And if you don’t already have adequate prescription drug coverage or belong to a Medicare Advantage Plan, you should consider joining a Medicare prescription drug plan offered in your area by a private company or insurer that has been approved by Medicare.


Unfortunately, Medicare won’t cover all of your health-related expenses. For some types of care, you’ll have to satisfy a deductible and make co-payments. That’s why many retirees purchase a Medigap policy.


Medigap

Unless you can afford to pay out of pocket for the things that Medicare doesn’t cover, including the annual co-payments and deductibles that apply to certain types of services, you may want to buy some type of Medigap policy when you sign up for Medicare Part B.

➢ In most states, there are 10 standard Medigap policies available. Each of these policies offers certain basic core benefits, and all but the most basic policy (Plan A) offer various combinations of additional benefits designed to cover what Medicare does not.

Although not all Medigap plans are available in every state, you should be able to find a plan that best meets your needs and your budget.


When you first enroll in Medicare Part B at age 65 or older, you have a six-month Medigap open enrollment period. During that time, you have a right to buy the Medigap policy of your choice from a private insurance company, regardless of any health problems you may have. The company cannot refuse you a policy or charge you more than other open enrollment applicants.


Long-term care

Long-term care refers to the ongoing services and support needed by people who have chronic health conditions or disabilities. Long-term care can be expensive. An important part of planning is deciding how to pay for these services.

Buying long-term care (LTC) insurance is an option. While premiums may be costly, having LTC insurance may allow you to elect where you receive your care, the type of care you receive, and who provides care to you. Many LTC insurance policies pay for the cost of care provided in a nursing home, assisted-living facility, or at home, but the cost of coverage generally depends on your age and the policy benefits and options you purchase. And premiums can increase if the insurer raises its overall rates.

Even with LTC insurance, you still may have some expenses not covered by LTC insurance.

For example:

➢ Not all policies provide coverage for care in your home. While the cost of in-home care may be less than the cost of care provided in a nursing home, it can still be quite expensive.

➢ Most policies allow for the selection of an elimination period of between 10 days and 1 year, during which time you are responsible for payment of care.

➢ The LTC insurance benefit is often paid based on a daily or monthly maximum amount, which may not be enough to cover all of the costs of care.

➢ While lifetime coverage may be selected, it can increase the premium cost significantly, and some policies may not offer that option. Another option that can be valuable, but also increase the premium expense considerably, is cost-of-living or inflation protection, which annually increases the daily insurance benefit based on a certain percentage.

➢ Most common LTC insurance benefit periods last from 1 year to 5 years, after which time the insurance coverage generally ends regardless of whether care is still being provided.

To encourage more individuals to buy long-term care insurance, many states have enacted Partnership programs that authorize private insurers to sell state-approved long-term care Partnership policies. Partnership policy owners, who expend policy benefits on long-term care services, will qualify for Medicaid without having to first spend all or most of their remaining assets (assuming they meet income and other eligibility requirements).

Medicaid and government benefits

Government benefits provided primarily through a state’s Medicaid program may be used to pay for long-term care. To qualify for Medicaid, however, assets and income must fall below certain limits, which vary from state to state. Often, this requires spending down assets, which may mean using savings to pay for care before qualifying for Medicaid.

If you are a veteran, you may be eligible for long-term care services for service-related disabilities and for other health programs such as nursing home care and at-home care through the Department of Veterans Affairs (VA). If you don’t have service-related disabilities, you may also be eligible for VA benefits if you are unable to pay for the cost of necessary care. Visit the Department of Veterans Affairs website (www.va.gov) for more information.

Other health-care factors to consider

It’s clear that health care is an important factor in retirement planning. Here are some tips to consider:

➢ Evaluate your present health and project your future medical needs. Considering your family’s health history may help you determine the type of care you might need in later years.

➢ Don’t presume Medicare and Medigap insurance will cover all your expenses. For example, Medicare (Parts A and B) does not cover the cost of routine eye exams, most eyeglasses or contact lenses, or routine hearing exams or hearing aids. Include potential out-of-pocket costs in your plan.

➢ Even if you have Medicare and Medigap insurance, there are premiums, deductibles, and co-payments to consider.

You may have already begun saving for your retirement, or you could be retired already, but if you fail to include the cost of health care as a retirement expense, you’re likely to find that health-care costs can sap retirement income in a hurry, potentially leaving you financially strapped.

Need help with your insurance and retirement planning? Click here for a no-obligation planning session. Our goal is to help make sure health care expenses do NOT deplete your hard-earned life savings! We’ve helped hundreds of women in the Los Angeles community against this growing problem.

 

VIDEO: Are Soaring Health Care Costs Hurting the U.S. Economy?

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Five Things to Watch Out for When Buying Long-Term Care Insurance

You’ve researched long-term care insurance (LTCI) and are seriously thinking of buying a policy. Just make sure you’re doing it for the right reasons–don’t be swayed by unsubstantiated sales pitches. Here are some claims you’ll want to think twice about.

A long-term care policy is a great tax write-off

Though it’s true that premiums paid on a tax-qualified LTCI policy can reduce your tax burden, you must itemize deductions to be eligible. When you’re older, perhaps you’ll no longer itemize deductions. And even if you do, LTCI premiums fall under the write-off for medical and dental expenses, which is limited to expenses that exceed 10 percent of your adjusted gross income. So, for example, if your adjusted gross income is $60,000, you are able to deduct only that portion of your unreimbursed medical and dental expenses (including LTCI premiums) that exceeds $6,000.

And there’s another caveat. Even if your LTCI premiums exceed 10 percent of your adjusted gross income, you can’t include all of the premiums in your deduction for medical and dental expenses. Instead, your premiums are deductible according to a sliding scale that depends on your age. So what might look like a great tax write-off at first glance may not be so great after all.

Note: The threshold is 7.5 percent for those age 65 and older until 2017, at which time it increases to 10 percent.

You should buy a policy now so you can lock in the price forever

With most LTCI policies, your age at the time you purchase the policy is a factor in determining your premiums. However, this doesn’t mean that your premiums will stay the same as long as you own the policy. In fact, your premiums can increase if your insurance company establishes a rate increase for everyone in your class, and that increase is approved by the state insurance commissioner.

As a relatively new type of insurance, LTCI may be particularly susceptible to rate increases, because insurance companies lack a sufficient amount of underwriting data to predict the number and size of claims they can expect in the future. And unfortunately for you, if your insurance company does raise your premium, it may not be so simple to take your business elsewhere. Any premium on a new LTCI policy will still be based on your age, which will be higher, and your health, which may be worse. So no matter when you buy your policy, make sure you can afford the premiums both now and in the future.

It doesn’t matter how the policy defines “facility”

Currently, there are no national standards on what constitutes a long-term care facility. This means that an “assisted-living facility” or “adult day-care facility” may mean one thing in a particular policy or state and another thing in a different policy or state. This can pose a problem if you buy the policy in one state and then retire to another state–there may be no facilities in your new state that match the definitions in your policy. To protect yourself, make sure you understand exactly what types of facilities the LTCI policy covers before you buy it.

It’s not necessary to check the financial rating of the insurance company

A large number of unexpected long-term care claims could potentially devastate an insurance company that isn’t financially strong. So before you buy an LTCI policy, it’s always a good idea to check the company’s financial rating by using a rating service like Standard & Poor’s, Moody’s, A. M. Best, or Fitch. You can also check with your state’s insurance department for more specific financial information on particular companies.

You should get rid of the policy you have now and buy a new one

Although in some cases a new LTCI policy might have an attractive added benefit that your old policy doesn’t, red flags should go up if an insurance agent encourages you to ditch your old policy for a new one without providing a clear explanation of the added benefits. For one thing, your premiums are based on your age and your health at the time you purchase the policy, so all other things being equal, your new policy will be more expensive. For another, you run the risk that a pre-existing condition won’t be covered under the new policy.

If you’re unhappy with your current policy, an alternative may be to upgrade it rather than replace it (though the agent earns a larger commission if you replace it). Unfortunately, there are unethical agents who make misleading comparisons of LTCI policies in an attempt to get you to switch policies for no reason other than their commission. If you’re considering switching policies, make sure you understand exactly what the new policy offers, whether this additional coverage is important to you, and what you’re giving up.

 

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The #1 Concern for Retirees – And Why They’re Getting It Wrong

One of the big eye-openers of adulthood is when roles reverse and the child must care for the parent. It’s one of the toughest problems we face as we get older – especially when our parents don’t have any long-term care plans or money set aside.

A Painful Balancing Act: Long-Term Care Choice and Budget

Finding the balance between securing safe, comfortable care for elderly parents and paying for it can be almost impossible. Many people are surprised to discover that Medicare doesn’t cover long-term care costs, also known as custodial care.

This type of service includes daily living assistance such as:

  • Bathing
  • Eating
  • Chores and housework
  • Going to the bathroom
  • Moving around

If you’re working full-time, raising children and responsible for your parents’ daily needs, this can be an overwhelming load. Now imagine you’re the parent – and your children have to make these decisions for you.

The #1 Concern: What Will Happen When I Can’t Care For Myself?

According to a recent survey by the Society of Actuaries, long-term care is tied for first place as the number one concern of retirees. The other concern is inflation.1

It’s not a big surprise that most people rank this as their chief worry. If you have had to make long-term care plans for a loved one, then you know how expensive it can be. Not to mention, the better facilities cost more money.

This comes with another set of questions: Will my loved one be properly cared for? Will my mother be neglected? Will my dad be happy and stimulated? What will their quality of life be like?

These questions are naturally applied to ourselves, too. We want to receive great care when we can no longer care for ourselves. We recognize that just because our bodies aren’t working optimally, our minds still crave stimulation and engagement. We want to retain as much control over our lives as possible.

The reverse is also true. How will we be cared for if we are unable to make decisions? These are not things we want to think about – especially while we’re young, healthy and active… but that’s precisely when we should be thinking about them.

For Women, Planning Is Particularly Important

Women more than men should consider preparing for long-term care. A gender gap in health means that figuring out how to pay for custodial and medical services is especially important for females. There are three major reasons for this:

➢ Women live, on average, 5 percent longer than men.2
➢ Because women outlive men, widowed women can’t depend on spouses to care for them.
➢ Women suffer from chronic diseases more than men do.3

The Worry Is There, But Not the Preparation

The staggering result of all this worry is that most people do little to nothing to prepare. In addition to not preparing, the Actuary survey showed that pre-retirees underestimate life expectancy. In 2015, the median of pre-retirees stated that they will live until 85, despite the fact that 55 percent of those reported at least one family member living past 90.

As far as a financial strategy for long-term health care, only 33 percent of those surveyed purchased a guaranteed lifetime income product.

“In terms of a planning horizon, 17 percent of pre-retirees plan for five to nine years, and 19 percent plan for ten to 14 years. By comparison, 38 percent of pre-retirees have either not thought about their planning horizon or do not plan ahead.”
– 2015 Risks and Process of Retirement Survey

More Expensive Than a Mortgage

In 2016, the average cost of a private room in a nursing home was $7,698.4 This is almost six times the amount of the average monthly mortgage payment.5

Although assisted living facilities are about half as much as a nursing home, they’re still expensive at $3,628 per month, especially if you’re on a fixed income.

Will You Need Long-Term Care?

There are no guarantees when it comes to health – which means you should plan on needing it and try to live a healthy lifestyle so that you don’t.

The numbers, however, point to the fact that more than half of us will need some form of assistance as we get older.

➢ In 2012, nine million Americans over the age of 65 required long-term care. That number is projected to jump to 12 million by 2020. 6

Considering Your Options

1. Long-term Care Insurance

Long-term Care Insurance is one of the most popular options as it drastically reduces the cost of care if you need it.

The American Association for Long-Term Care Insurance reports that the average married couple, age 55, would pay $1,816 per year for a policy with $162,000 in coverage for each. A 3-percent inflation protection rider is also available for about $1900 more per year.7

The earlier you lock in a rate, the better. A good time to invest in this insurance is around age 52.

2. Life Insurance With a Long-term Care Rider

This might be a good option as there are a couple more benefits with this option than a traditional long-term care insurance policy. Basically, you will get the death benefits that come with a life insurance policy, you will pay about the same – or less – in monthly payments – and enjoy approximately the same coverage you would receive with long-term care insurance through the rider.

3. Fixed Index Annuity

A fixed index annuity with a single premium is yet another route to take on your way to long-term care preparation. Some annuities offer a long-term care doubler benefit which pays twice as much per month as it would if you were not in long-term care. This is an amazing perk and one that could save you tons of money down the road.

Bottom Line

Don’t wait to get ready for long-term care. Even if you are running marathons in your 60s, the time might come when you need some form of assistance. It’s better to have a plan in place now than to rely on your children or social services to help you later.

If you need help deciding if long term care is for you or your parents, we are here to help. Click here to request a call or call us at 310-824-1000 and ask for Caroline. She’ll be happy to set up a time in our calendar.

 

1https://www.soa.org/press-releases/2016/survey-examines-retirement-concerns/
2http://www.bbc.com/future/story/20151001-why-women-live-longer-than-men
3http://www.cwhn.ca/en/resources/primers/chronicdisease
4https://www.genworth.com/about-us/industry-expertise/cost-of-care.html
5http://themortgagereports.com/20589/freddie-mac-mortgage-payments-homeownership-costs-may-2016
6http://www.forbes.com/sites/jrose/2016/03/22/long-term-care-insurance-alternatives/#1af57501a192
7http://www.cnbc.com/2016/03/15/long-term-care-coverage-peace-of-mind-at-a-price.html

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Long-Term Care Insurance as a Protection Planning Tool

What is Long-Term Care Insurance (LTCI)?

In return for your payment of premiums, a long-term care insurance (LTCI) policy will pay a selected dollar amount per day (for a selected period of time) for your skilled, intermediate, or custodial care in nursing homes and, sometimes, in alternative care settings, such as home health care.

Because Medicare and other forms of health insurance do not pay for custodial care, many nursing home residents have only three alternatives for paying their nursing home bills: their own assets (cash, investments), Medicaid, and LTCI.

In general, long-term care refers to a broad range of medical and personal services designed to provide ongoing care for people with chronic disabilities who have lost the ability to function independently. The need for this care often arises when physical or mental impairments prevent one from performing certain basic activities, such as feeding oneself, bathing, dressing, transferring, and toileting.

Long-term care may be divided into three levels:

  • Skilled care–Continuous “around-the-clock” care designed to treat a medical condition. This care is ordered by a physician and performed by skilled medical personnel, such as registered nurses or professional therapists. A treatment plan is drawn up.
  • Intermediate care–Intermittent nursing and rehabilitative care provided by registered nurses, licensed practical nurses, and nurse’s aides under the supervision of a physician.
  • Custodial care–Care designed to assist one perform the activities of daily living (such as bathing, eating, and dressing). It can be provided by someone without professional medical skills, but is supervised by a physician.

Tip: Note that the preceding terms may be defined differently by Medicare.

How is LTCI useful as a protection planning tool?

The risk of contracting a chronic debilitating illness (and the resulting catastrophic medical bills incurred) is considered by many to be one type of risk best transferred to an insurance company through the purchase of LTCI.

A number of factors can increase your risk of requiring long-term care in the future. Naturally, your health status affects your likelihood of incurring a long stay in a nursing home. Indeed, people with chronic or degenerative medical conditions (such as rheumatoid arthritis, Alzheimer’s disease, or Parkinson’s disease) are more likely than the average person to require long-term nursing care.

And because women usually outlive the men in their lives (if any), females stand a greater chance of requiring long-term nursing care. However, if you already have a primary caregiver (like a spouse or child), your likelihood of needing a long stay in a nursing home will be less–particularly if you’re a man.

Because the cost of long-term care can be astronomical and may exhaust your life savings, purchasing LTCI should be considered as part of your overall asset protection strategy.


Example(s): Irene is a 75-year-old widow with two children, Donald and Maria. Irene owns her condominium apartment and has $200,000 in liquid assets. After enjoying independence much of her life, Irene suffers a stroke and now needs help with such things as bathing, dressing, and eating.

Donald and Maria look into home health care and discover that it will cost $1,500 per week (or $78,000 per year). The money that Irene had hoped to pass on to her children will instead be spent on expenses that may otherwise have been covered by an LTCI policy.


Tip: Bear in mind, also, that purchasing an LTCI policy while you are still healthy helps you to maintain control over your assets until such time as you actually require care. This stands in contrast to most Medicaid planning tools.

Medicaid planning can also enable your nursing home bills to be subsidized by a third party (the state); however, it often involves transferring your assets promptly to avoid Medicaid penalties. With LTCI, there is no need for you to divest yourself of assets years ahead of time.

If you transfer some of your assets to your children while your LTCI is paying your nursing home bills, will you be subject to any penalties?

This depends on a number of factors, including the duration of benefits you selected in your LTCI policy. As mentioned, LTCI can be employed as part of your overall Medicaid planning strategy if your goal is to qualify for Medicaid at some point. If you are very wealthy and have no intention of ever applying for Medicaid, transferring your assets will make no difference.

If you do envision receiving Medicaid assistance with your nursing home bills at some point, however, then transferring your assets within a few years of the time you apply for Medicaid could pose a real problem.

In general, if you transfer certain assets for less than fair market value within what’s known as the look-back period, the state presumes that the transfer was made solely to qualify you for Medicaid. Therefore, the state will impose a waiting period or period of ineligibility upon you before you can start to collect Medicaid benefits.

Purchasing an LTCI policy allows you to transfer your assets to your loved ones after you enter a nursing home. If you select the proper duration of benefits provisions in your policy, your LTCI policy should cover your nursing home bills during the ineligibility period caused by the transfer.

Thus, you can give your assets away, enjoy paid nursing home bills during the ineligibility period, and qualify for Medicaid when the insurance policy runs out.


Example(s):Marge is a 75-year-old widow who purchased a five-year LTCI policy a few years ago. Marge enters a nursing home, which charges $5,000 per month. At the same time, she transfers all of her assets (worth $250,000) to an irrevocable trust to qualify for Medicaid when the insurance benefits run out.

Example(s):Transferring certain assets into an irrevocable trust within 60 months of applying for Medicaid creates a waiting period or period of ineligibility for Medicaid, based on a formula. In Marge’s case, the applicable waiting period would be 50 months (the amount she transferred divided by the cost of care in her area).

Marge has no funds left to pay for her care, and Medicaid won’t kick in until the 50 months have elapsed. Fortunately, Marge’s LTCI policy will cover her nursing home bills during the ineligibility period. And, when her insurance benefits run out five years from now, she will qualify for Medicaid.


Tip: The Deficit Reduction Act of 2005 gave all states the option of enacting long-term care partnership programs that combine private LTCI with Medicaid coverage. Partnership programs enable individuals to pay for long-term care and preserve some of their wealth.

Although state programs vary, individuals who purchase partnership-approved LTCI policies, then exhaust policy benefits on long-term care services, will generally qualify for Medicaid without having to first spend down all or part of their assets (assuming they meet income and other eligibility requirements). Although partnership programs are currently available in just a few states, it’s likely that many more states will offer them in the future.

When can it be used?

You anticipate the need for long-term care, you wish to protect your assets for your loved ones, and you can afford to pay the premiums. When buying an LTCI policy, you must consider not only whether you can afford to pay the premiums now, but also whether you’ll be able to continue paying premiums in the future, when your income may be substantially decreased.

Overall, however, purchasing LTCI is a wise move for older Americans who are financially comfortable (or who are at least able to afford the premiums), who wish to maintain control over assets for as long as possible, and who’d rather give away houses and other assets to loved ones.

Strengths

Subsidizes nursing home bills

Aging is inevitable, and the gradual inability to function independently is a great concern for many people. Although the prospect of entering a nursing home is a daunting one, equally frightening is the expense of nursing home care.

Purchasing an LTCI policy can give you some peace of mind; it’s comforting to know that at least some of the cost of the first few years of nursing home care will be paid for. Moreover, because nursing homes may limit the number of beds available to Medicaid patients, you may have a wider choice of facilities if you’re covered by LTCI than if you had to rely on Medicaid to pay for your care.

Allows you to protect your assets

Purchasing an LTCI policy allows you to transfer your assets to your loved ones after you enter a nursing home. The policy should cover your nursing home bills during the Medicaid ineligibility period caused by the transfer.

Without such a policy, you’d either have to transfer your assets years before entering a nursing home or else deplete some of your assets by private-paying the Page 3 of 5, see disclaimer on final page April 13, 2017 nursing home during the period of Medicaid ineligibility caused by your late transfer of assets. The LTCI policy allows you to preserve your assets for your loved ones instead of spending them on nursing home bills.

Tradeoffs

May be expensive

The cost of LTCI varies depending on your age, the benefits you choose, the insurer, and other factors. When buying an LTCI policy, you must consider not only whether you can afford to pay the premium now, but also whether you’ll be able to continue paying premiums in the future (when your income may be substantially decreased).

Risk is involved

Paying insurance premiums each year in the expectation that you might (at some future time) require nursing home care is a risky move. There is always the possibility that you will remain healthy and able to function independently as you grow older. The money you pay out in premiums is money that you cannot give to your children or other loved ones, so be aware of the tradeoff.

May not be necessary if you’ll qualify for Medicaid

If you have modest resources, very likely, you can qualify for Medicaid by spending down some assets and/or engaging in a little Medicaid planning a few years ahead of time. That way, you’ll be able to avoid paying the high cost of premiums over a number of years.

How to do it

If you are interested in purchasing LTCI, there are a couple of steps you should follow:

Compare policies and check the financial security of the companies you’re reviewing

You can determine the financial security of a company by reviewing its A. M. Best’s rating along with the ratings of other services, such as Moody’s or Standard & Poor’s, at your local library. You should select a company that has received a rating of A or A+ from A. M. Best.

Review the policy’s provisions carefully to ensure that it offers the features you
require

There are a number of factors you should be concerned about, such as inflation protection, a full range of care (including home health care), and exclusions for pre-existing conditions.

Tax considerations

Income tax

Benefits you receive from a “qualified” LTCI policy are not taxable to you as income and are treated as excludable benefits received for personal injury and sickness to the extent that such benefits do not exceed a per diem limitation. However, benefits received from a policy that is not a tax-qualified one might be taxable as income.

Deductibility

Federal law allows you to deduct all or part of the premium paid for a tax-qualified (LTCI) contract. A portion of your LTCI premium should be added to your other deductible medical expenses. To claim a tax deduction, the total of your medical expenses must exceed 10 percent of your adjusted gross income.

Caution: Not all long-term care contracts are tax-qualified–your policy must meet certain federal standards.

Whether you need insurance or not, long-term care is an important factor when planning for your retirement.

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