EHDH Estate Planning

Long-Term Care Insurance and Your Retirement

The U.S. Health and Human Services Department estimates that more than half of Americans turning 65 will need some kind of long-term care. It may be care provided in a facility or at home, but however the care is delivered, it will be costly.

CNBC’s recent article, “Not having long-term care insurance can be ‘the single biggest devastator’ of your financial plan,” reports that over 8 million Americans have long-term care insurance. However, the cost of that insurance is rising. This increase is because of several factors, including the fact that companies underpriced their policies for years and misjudged how many would drop coverage.

Because of those rising premiums, some individuals may choose self-insurance. That means saving a pool of money to earmark for long-term care. Coverage is also available through Medicaid, which has eligibility requirements.

Even with these increases, you should purchase some form of coverage. This is because not being insured can be the biggest devastator of a financial plan.

The rule of thumb has been to buy LTC coverage at age 55. However, it really depends on your situation. The big unknown is health, and the odds of being able to qualify for coverage at age 60 compared to age 30 or 40 is vastly different.

A traditional LTC policy will cover the costs of care for a certain period of time, generally up to six years. The amount of coverage is based on the average cost of care for your location. Most insurers offer it in the form of a monthly benefit, and possibly with some inflation protection.

There’s also a hybrid policy that covers long-term care costs but becomes life insurance paid to heirs, if it’s not used. Of the 350,000 Americans who purchased long-term care protection in 2018, 85% chose the hybrid coverage. It’s also called combo or linked-benefit. The big difference is price: you’ll pay more for the hybrid policy.

For people who have no assets, Medicaid is the solution, but the choices for care are not often ideal. For those who seek to protect their assets, an elder law attorney will be needed to use legal strategies for protecting the healthy spouse and assets. Applying for Medicaid while protecting assets requires advance planning, since there is a five-year look back period. Talk with an attorney beforehand.

Reference: CNBC (October 14, 2019) “Not having long-term care insurance can be ‘the single biggest devastator’ of your financial plan”

Senior Veterans Should Apply for These Benefits

Senior budgets are part of the challenge of aging. For veterans, there’s good news from a recent article from U.S. News & World Report, “Veteran Benefits for Assisted Living,” that says some senior living companies are working to help veterans obtain benefits that can help with their costs.

Note that the VA won’t pay for a veteran’s rent in an assisted living facility. However, VA benefits may pay for some of the extra services required, like nursing assistance, help with bathing and toileting, and possibly meals.

There are a variety of benefits that may help, based on a vet’s specific service history and eligibility. The most commonly used benefits are the Aid & Attendance Pension. Another common benefit is the Survivor’s Pension for spouses of a deceased veteran with wartime service.

The VA’s Aid & Attendance and Housebound program is part of the pension benefits paid to veterans and survivors. The VA says these benefits are paid, in addition to a monthly pension. A vet must satisfy one of the potential conditions, including:

• Requiring the aid of another person to perform personal functions, like bathing, dressing, eating, toileting, or staying safe from hazards;
• Being disabled and bedridden, above what would be thought of as recovery from a course of treatment, such as surgery;
• Being a patient in a nursing home due to physical or mental incapacity; and
• Having very poor eyesight (5/200 corrected visual acuity or less in both eyes) or a field of vision limited to five degrees or less.

Vets may qualify for these benefits, which are added to the standard monthly pension, when he or she is “substantially confined to your immediate premises because of permanent disability,” the VA says. Eligibility for the program is based on a case by case basis and involves a review by the VA.

Like any other government benefit, it’s important to start the application process early, rather than waiting until a crisis hits and benefits are critical. The goal is to maximize the use of the money saved, so that the individual can afford high-quality care for as long as possible, and the hope is that the VA benefits will help to do that. An experienced estate planning or elder law attorney who routinely works with veterans and their families will be an important resource.

Reference: U.S. News & World Report (August 12, 2019) “Veteran Benefits for Assisted Living”

Are Long-Term Care Expenses Tax Deductible?

The numbers reported by the U.S. Department of Health and Human Services are scary to contemplate. The only good news is that costs of long-term care may be tax deductible, and a portion of premiums for long-term care insurance policies may be deductible as well. The cost of insurance is a far better buy than the cost of services, if you are considering whether or not to purchase a policy.

Kiplinger’s recent article, “Deduct Expenses for Long-Term Care on Your Tax Return,” explains that you can deduct unreimbursed costs for long-term care as a medical expense, including eligible expenses for in-home, assisted living and nursing-home services. However, certain requirements must be met. The long-term care must be medically necessary and can include preventive, therapeutic, treating, rehabilitative, personal care, or other services. The cost of meals and lodging at an assisted-living facility or nursing home is also included, if the main reason for being there is to get qualified medical care.

The care must also be for a chronically ill person and given under a care plan prescribed by a licensed health care practitioner. A person is “chronically ill,” if he or she can’t perform at least two activities of daily living—like eating, bathing or dressing—without help for at least 90 days. This condition must be certified in writing within the past year. A person with a severe cognitive impairment is also deemed to be chronically ill, if supervision is needed to protect his or her health and safety.

To claim the deduction, you must itemize deductions on your tax return. Itemized deductions for medical expenses are only allowed to the extent they exceed 10% of your adjusted gross income in 2019. An adult child can claim a medical expense deduction on his own tax return for the cost of a parent’s care, if he can claim the parent as a dependent.

The IRS also permits a limited deduction for certain long-term-care insurance premiums. You must submit an itemized deduction for medical expenses, and only premiums exceeding the 10% of AGI threshold are deductible in 2019. Further, the insurance policy itself must satisfy certain requirements for the premiums to be deductible. For instance, it can only cover long-term-care services. This limitation means the deduction only applies to traditional long-term-care policies, rather than hybrid policies that combine life insurance with long-term-care benefits. The deduction has an age-related cap.

While these deductions are not that useful for 50 or 60 year old people, they become more valuable over time. Income tends to drop in retirement, and deductions have a proportionately bigger impact on taxes. It is also true is that as people age, their medical expenses tend to increase, making it more likely that they will exceed the required 10% of AGI. IRS data shows that as many as two-thirds of all medical-expense decisions are made by seniors.

Reference: Kiplinger (September 4, 2019) “Deduct Expenses for Long-Term Care on Your Tax Return”

Estate Planning Essentials

Having an estate plan means that you and your family are prepared not just for death, but also for illness and incapacity. Distribution of your property according to your wishes, is just one part of an estate plan. Minimizing state and federal estate taxes is another. A complete estate plan addresses many legal, financial and health issues.

Investopedia’s recent article, “6 Estate Planning Must-Haves,” provides us with a list of items every estate plan should include:

• A will and/or a trust;
• Powers of attorney;
• Beneficiary designations;
• A letter of intent; and
• Guardianship designations.

In addition to these documents and designations, a thorough estate plan also should consider the purchase of insurance, like long-term care insurance, a lifetime annuity to generate some level of income until death, and life insurance to pass money to beneficiaries without probate.

Let's look at each item on this checklist to make sure you haven't left any decisions to chance.

Wills and Trusts. A will or trust should be one of the primary parts of your estate plan, even if you don't have a lot of assets. Wills make certain that your assets are distributed according to your instructions. Some trusts also help limit estate taxes or legal challenges. Talk to an experienced estate planning attorney about wills and trusts.

Power Of Attorney. A durable power of attorney (POA) allows an agent or a person you assign to act on your behalf, if you’re unable to do so yourself. A healthcare power of attorney (HCPA) designates another person to make critical healthcare decisions on your behalf in the event of incapacity.

Beneficiary Designations. Some of your assets will pass to your heirs without being mentioned in your will, such as 401(k) plan assets. Therefore, maintain a beneficiary and a contingent beneficiary on these types of accounts. Likewise, insurance plans should have a beneficiary and a contingent beneficiary, because they also pass outside of a will. Your beneficiaries should be over 21 and mentally competent.

Letter of Intent. This is simply a document for your executor or a beneficiary to define what you want done with a particular asset after your death or incapacitation. Some letters of intent also contain funeral details and other special requests. A letter of intent isn’t legally binding. It helps inform a probate judge of your intentions and may help in the distribution of your assets, if the will is declared invalid for some reason.

Guardians. If you have minor children or are considering having kids, naming a guardian is very important. Be sure the person(s) shares your views, is financially sound and willing to raise your children. You should also name a backup or contingent guardian.

Most people don’t understand that if you don’t name a guardian in your will, the decision is made by the court. It is possible that the court choses someone you would never have wanted to raise your children.

Meet with an estate planning attorney and prepare a complete estate plan to protect your loved ones.

Reference: Investopedia (July 16, 2019) “6 Estate Planning Must-Haves”

What Should You Do About Long Term Care?

Half of people who are age 65 and over will incur the long-term cost of nursing home or skilled facility care. The problem is, according to this article from MarketWatch, “This is how much long-term care could cost you, and don’t expect Medicare to help,” that Medicare doesn’t cover the custodial care necessary for the tasks of daily living.

The length of care needed differs by gender. The U.S. Department of Health and Human Services’ Administration on Aging says that men can expect to need help for an average of 2.2 years, and women will need help for about 3.7 years.

Many will rely on unpaid care from spouses or children, but over a third will spend time in a nursing home, where the median annual cost of a private room is now more than $100,000, according to insurer Genworth’s 2018 Cost of Care Survey. Four out of ten will choose paid care at home; the median annual cost of a home health aide is more than $50,000. Finally, more than 50% of people over 65 will incur long-term care costs, and 15% will incur more than $250,000 in costs, according to a study by Vanguard Research and Mercer Health and Benefits.

Note that Medicare and private health insurance typically don’t cover these “custodial” expenses. This means that such costs can quickly deplete the $126,000 median retirement savings for people age 65 to 74. People who exhaust their savings could wind up on Medicaid, the government health program for the indigent that pays for about half of all nursing home and custodial care.

People who live alone, are in poor health, or who have a family history of chronic conditions are more likely to require long-term care. Women face special risks, since they typically outlive their husbands and, as a result, may not have anyone to provide them with unpaid care. If husbands require paid care that erases all of the couple’s savings, women could have years or even decades of living on nothing but Social Security.

The earlier you start planning, the more choice and control you’ll have. Let’s look at some of the options:

Long-term care insurance. The average annual premium for a 55-year-old couple was $3,050 in 2019, according to the American Association for Long-Term Care Insurance. Premiums are higher for older people, and those with chronic conditions might not be eligible. Policies typically cover part of long-term care costs for a defined period, like three years.

Hybrid long-term care insurance. With life insurance or annuities with long-term care benefits, money that isn’t used for long-term care can be left to your heirs. These products typically require you to commit large sums or are paid in installments over 5 to 10 years, although some now have “lifetime pay” options.

Home equity. People who move permanently into a nursing home may be able to sell their houses to help fund the care. Reverse mortgages may be an option, if one member of a couple remains in the home. This type of loan lets them use their home equity. However, it must be repaid if the owners die, sold, or they must move out.

Contingency reserve. People with a great deal of investments could plan on using some of those assets for long-term care. Their investments can produce income, until there’s a need for long-term care, and then can be sold to pay for a nursing home or home health aide.

Spending down for Medicaid eligibility. If the worst case scenario hits and long-term care wipes out all retirement assets, then the only recourse is to apply for Medicaid. It would be better to do some advance planning with an elder law attorney, to see if there is any way to protect some assets for a surviving spouse, if there is one.

In all cases, advance planning in mid-life to purchase a long-term insurance plan is optimal.

Reference: MarketWatch (July 19, 2019) “This is how much long-term care could cost you, and don’t expect Medicare to help”

How to Select the Long-Term Care Insurance That’s Best for You

Your insurance agent will be able to explain the different types of long-term care or LTC insurance for you. Select insurance companies offer this kind of insurance coverage for individuals. If you work for the federal government, you may obtain LTC insurance through the federal FLTCIP program. Regardless of how you buy them, there are a variety of options that will depend upon your individual situation.

Some policies may pay for care not only in a nursing home but also in an assisted living facility or at the home of the person who requires care.

Policies may also include cost-of-living adjustments, which will increase future benefit payments.

Some companies also offer LTC policies that cover both spouses at a discounted rate, rather than having to purchase two separate policies.

Fed Week’s recent article, “Selecting among Long-Term Care Options to Hold Down Costs,” explains that there also are life insurance policies that double as LTC insurance.

Therefore, if these policies cover long-term care expenses; the policy’s death benefit will be reduced.

However, if long-term care is not needed, the insured individual’s beneficiary eventually can receive the full death benefit.

Remember also that the ongoing premiums will be lower, compared with policies bought when a person is older.

When you’re shopping for LTC insurance, there are some tactics that can reduce your policy cost. Here are just a few:

• Reduce benefits. A policy that pays benefits as long as you need long-term care can be very expensive. However, a policy with a five-year maximum payout will be less expensive. There are not many people who will need more than five years of long-term care.
• Wait longer. You can reduce costs, by extending the period before you collect benefits. A policy with a 90-day waiting period will be less expensive than an LTC policy with a 20-day wait. Of course, this is only a bargain, if you can afford to pay for 90 days from your own resources.
• Look out for automatic inflation increases. If you are working to keep costs down, consider a “future purchase option” that will let you buy more coverage, if you need it, even if you have faced health issues. Your alternative is a policy that increases your benefit annually from $100 a day to $105—$110, etc. This becomes very costly, very quickly.

Reference: Fed Week (June 27, 2019) “Selecting among Long-Term Care Options to Hold Down Costs”

What is MERP and Will It Impact My Estate?

Medicaid does seek recovery of funds that are expended for providing long-term care.

You’ll never get a notice that Medicaid (let’s say in the State of Texas) is calculating a bill for mom’s entire healthcare tab that Medicaid paid. However, you may get a notice that says the state wants mom’s house. That’s because Medicaid is asking to be reimbursed for over $125,000 that was spent for the mother’s care and her prescriptions.

The document may come from the Medicaid Estate Recovery Program (MERP) that says the state Medicaid program wants the money used for her care, because his mother owned the house.

The Houston Chronicle’s recent article, “Is Medicaid a good long-term care option?” emphasizes that we should all know about the MERP (Medicaid Estate Recovery Program), especially if it seems that our aging parents may need to apply for Medicaid for long-term care.

A Medicaid attorney can answer questions from adult children who are shocked when they find out the state has put a lien on their parent’s house because of long-term care health-care cost for which the specific state paid. Medicaid long-term care can be care can be provided at home, at an assisted living facility, or personal care at home or in a nursing home. It also doesn’t matter when the Medicaid system has paid for the mom’s care.

Medicaid can recover any and all medical expenses which include any hospital services, prescription drugs and even Medicare cost sharing expenses which are Medicare premiums (Part A—hospital insurance, Part B—medical insurance), deductibles and coinsurance amounts that the state’s Medicaid has paid.

Any claims against the estate, and that includes MERP claims, must be paid before assets can be distributed, according to the will. You won’t be required to sell the decedent’s home, if the MERP claim can be paid with other funds. However, if that’s the only available asset available, it may need to be sold, or the state may file a lien against the house.

The best approach is to speak with a Medicaid or elder law attorney in advance, so that planning can be done. There are strategies that can be used. However, a plan needs to be created in advance that meets all state and federal requirements.

Reference: Houston Chronicle (May 29, 2019) “Is Medicaid a good long-term care option?”

Boomer’s Retirement May Not be as Much Fun as Their Childhoods

About half of the baby boomers are already in retirement. Those are the people born between 1946 and 1964, ages 55 to 73. According to the Insured Retirement Institute’s annual report, Boomer Expectations for Retirement, the combination of not enough savings, underestimating healthcare costs and unrealistic expectations of how much retirement income they’ll need, have led a too-little, too-late wake up call. This article from CNBC, “Baby boomers face retirement crisis—little savings, high health costs and unrealistic expectations,” explains it all.

Too little savings. The three "legs" of the retirement "stool" are Social Security, private pensions and personal savings. These aren’t in great shape, as the average Social Security check is $14,000 a year, and just 23% of boomers ages 56-61 expect to receive income from a private company pension plan, with only 38% of older boomers expecting a pension. Most boomers haven’t saved nearly enough in their personal savings, with 45% of boomers having absolutely nothing saved for retirement.

Underestimating health care costs. Retirees frequently underestimate health expenses, especially long-term care costs. Many people don't understand the system: half of the survey respondents say they haven’t calculated the cost of long-term care insurance, because they say they’ll rely on Medicare. However, Medicare has no coverage for long-term care. Just eight percent of boomers say they have purchased a long-term care policy.

Underestimating retirement income. The average amount spent by Americans 65-74 is $55,000 annually. However, most baby boomers don't believe they’ll need near that amount. To that point, about 60% say they will need less than that on which to live. Their backup plan is to downsize, go back to work, or ask their children for help.

Two things that those surveyed said they wish they had done better should sound familiar: to start saving earlier in their lives (58%) and to have saved more (63%).

A word to the millennials and Gen Xers–don’t follow in the boomer’s footsteps, when it comes to retirement.

Reference: CNBC (April 9, 2019) “Baby boomers face retirement crisis — little savings, high health costs and unrealistic expectations”

Can an Entire Generation Skip Retirement Planning?

Always going their own way, boomers seem to have decided it’s okay to plan a funeral but not plan for failing health during retirement, reports MarketWatch in a recent article, “Baby boomers are more prepared for death than they are for their own lives.”

A study from the Bankers Life Center for a Secure Retirement revealed that eight in 10 middle-income boomers have done something about their death, either preparing a will or making their funeral preferences known to children. However, few seem to be motivated for dealing with the hard realities of aging. Only a third have made any plans about receiving care, if their health fails. Just under a third have less than $1,000 saved for emergencies, like a healthcare issue, and only 20% have savings dedicated for long-term care.

And many—40%—aren’t even concerned about care during retirement , saying it’s a low priority, or not a priority at all.

The reality is that failing health is likely to affect most of us, often to a point that we’ll need to get a caregiver or even go into a nursing home. According to the Family Caregiver Alliance, 69% of people 65 and older will have disabilities before they die, and 35% will enter a nursing home. Therefore, why are boomers so resistant to planning for the care they might need in life? Perhaps it’s a topic that makes people uncomfortable and because they don’t know where to start.

Of those who don’t have a retirement care plan, 32% responded that they needed advice but didn’t know who to trust, and 21% said that planning was too complicated. Others said it was too hard to talk about (20%), while 16% reported that they believe a plan isn’t needed.

Many people are also unaware of the fundamental facts about Medicare and paying for retirement care. About 56% mistakenly think they’ll use Medicare to pay for care, even though it typically doesn’t pay for long-term care, like a nursing home. If you factor in their lack of preparation, 81% of boomers underestimate the cost of nursing home care. However, whatever the reasons, it’s vital to plan for caregiving, so that our wishes can be honored, and we can afford to pay for the care we’d like. Let’s look at how to do this.

Draft an advance directive, which details your medical wishes, if you become unable to voice those wishes for yourself. You can also name someone else to make the decisions on your behalf, if you’re unable to do so.

Think about how you’d afford long-term care, if required. Long-term care insurance may cover the nursing home, assisted living or in-home-care costs that Medicare won’t, but it can be costly. It also has limitations, like possible specifications that may require you to be in a very high-level assisted living or nursing home, before the policy starts.

It would be wise to set money aside specifically for the cost of medical care in general. Studies show that the average retired couple should expect to spend about $280,000 for medical costs in retirement, and that does not include the cost of long-term care.

One option is to put money into an HSA, if you are still working. You can contribute with pretax dollars, which can grow and be withdrawn tax-free for federal tax purposes, if used for qualified medical expenses.

While we can never know what illness or injury will occur, staying as healthy as you can is a valuable and often overlooked strategy for a successful retirement.

Reference: MarketWatch (March 15, 2019) “Baby boomers are more prepared for death than they are for their own lives”

What You Don’t Know About Caregiving Costs Could Cost You Plenty!

Here’s a number that will give you something to think about, if you are a caregiver or are about to become one: the value of friends and family caregiving amounts to about $470 billion per year, according to an AARP Public Policy Institute Report. Caring for a loved one has certain costs in time and money that are difficult to predict.

U.S. News & World Report says, in “7 Myths About Caregiving Costs,” you should sift through the financial details, as early as possible, to save time and money in the long term. Let’s look at some common misconceptions concerning the costs of caregiving, as well as the realities to expect.

Your relative will stay at home and not have caregiving expenses. While your aging relative may never move to an assisted living facility, other care-related costs could still arise because many adult children take on the responsibilities for their aging parent gradually. You eventually may need to bring in skilled nursing support or arrange for in-home care. Even if your senior never lives outside of his own home, responsibilities like these define the role of a caregiver, and the costs creep up over time.

All home help will be paid for by insurance. You may think that health insurance or Medicare will pay for all of the costs. However, in most instances, you'll need to find other funds for daily help at home. Health insurance and Medicare never pay for custodial care.

It’s easy to figure out how much assistance at home will cost. The precise amount your loved one or family will spend on bringing in home assistance can vary significantly. It really depends on the level of care needed, along with whether a patient has long-term care insurance or any other form of long-term insurance, where they live, and if they qualify for Medicaid. The cost can also vary, based on the family situation where relatives are available to help on certain days, reducing the amount needed to pay for professional caregiving assistance.

The cost of caregiving is merely financial. If you’re taking hours every week of your days caring for a loved one, you may experience struggles in other areas of your life. This could mean you have little time for other family and friends, sleep, or exercise. These can lead to non-financial costs like increased stress, your own health problems and the emotional strain of caring for an aging loved one.

You can’t afford a caregiver, so you're not going to get one. If your aging parent has few financial resources or other family members can’t help pay for professional care, you should look at what other resources may be available.

Caregiving won’t affect your own finances. Sorry, but helping a loved one may entail additional physical demands that can affect your career and your financial status. Caregivers often work less hours, forfeit promotions, change jobs and even leave the workforce.

A discussion about finances can wait until care is warranted. Not so. If your loved one is now in good health and living at home, it can still be a wise idea to plan, so that if a crisis such as an accident occurs, everyone is ready.

You need to have this discussion, but you also need to be sensitive to your loved one. Try starting with some simple questions, to find out what they know about available resources. Do they know what services they might be eligible for? Find out who they would want to have as Power of Attorney and who they would want to make financial and health care decisions on their behalf if they can’t. Starting the conversation may be hard, but these are important topics and you’ll be in a better position to help, if you have the necessary information.

Reference: U.S. News & World Report (Dec. 12, 2018) “7 Myths About Caregiving Costs”