Dual trends that do not bode well for most people are: the rising cost of care; and, the tendency toward longer lives. The cost of obtaining care in the face of capacity decline and illness is likely to be a real challenge for many families, making it critically important to integrate long term care arrangements into estate planning.
Unanticipated Expenses
Estate planning experts at Adler Pollock & Sheehan wisely point out that “few events can upend your estate plan as the way unanticipated long-term care (LTC) expenses can.” As we age, there is a strong chance we will experience physical and or mental declines. The harsh reality is that the cost of receiving assistance, whether at home or in a residential facility, can drain savings and put a real dent in assets. Planning ahead for potential LTC expenses is in many ways the best gift we can leave our families, especially since these services are not “covered by traditional health insurance policies, Social Security or Medicare.”
Depending on circumstances and means, there are several different approaches to planning for long term care expenses. For example, if savings are ample, it may be feasible to plan for LTC expenses simply by earmarking a slice of the nest egg to pay out-of-pocket for help, if and when the need arises:
An advantage of this approach is that you’ll avoid the high cost of LTC insurance premiums … If you’re fortunate enough to avoid the need for LTC, you’ll enjoy a savings windfall. … The risk… is that your LTC expenses will be significantly larger than anticipated, eroding the funds available to your heirs. Any type of asset or investment can be used to self-fund LTC expenses, including savings accounts, pension or other retirement funds, stocks, bonds, mutual funds, or annuities. Another option is to tap the equity in your home by selling it, taking out a home equity loan or line of credit, or obtaining a reverse mortgage. Two vehicles that are particularly effective for funding LTC expenses are Roth IRAs and Health Savings Accounts (HSAs). Roth IRAs aren’t subject to minimum distribution requirements, so you can let the funds grow tax-free until they’re needed.
Although LTC insurance policies are pricey, obtaining one can be the way to go if your nest egg is not large enough to foot the bills for anticipated care needs. An LTC insurance policy will arm your loved ones with a way to help you, by covering expenses that traditional health insurance policies do not. The timing and details of buying an LTC insurance policy deserve careful consideration:
The younger you are, the lower the premiums, but you’ll be paying for insurance coverage during a time that you’re not likely to need it. Although the right time for you depends on your health, family medical history and other factors, many people purchase these policies in their early to mid-60s. Keep in mind that once you reach your mid-70s, LTC coverage may no longer be available to you. In evaluating LTC insurance, be sure to find out whether your employer offers a less costly group LTC policy. Be sure to also consider hybrid insurance policies. They combine LTC coverage with traditional life insurance. Often, these take the form of a permanent life insurance policy with an LTC rider that provides for tax-free accelerated death benefits in the event of certain diagnoses or medical conditions. These policies can have advantages over stand-alone LTC policies, such as less stringent underwriting requirements and guaranteed premiums….
Another option for ensuring care is available should there be a capacity decline down the road is establishing an irrevocable trust and transferring assets into it. Doing so, well before help is actually needed, may enable qualification for public benefits, like Medicaid, which ultimately pays for care:
Most senior citizens will eventually need long-term care, and many will spend their final days in nursing homes. These facilities are extremely expensive, and Medicare will not help with nursing home costs. A married couple might have two rounds of long-term care expenses. Medicaid will pay for long-term care, but once again, there are low income and asset limits. To position resources out of your name in an effort to qualify for Medicaid, you could convey them into an income-only Medicaid trust. This would be an irrevocable trust, so you would not be able to touch the principal or dissolve the trust.
Good To Know: Trustees and Trustee Bonds
When any type of trust is established, one or more trustees are named to administer the assets in them, based on the arrangements specified in the trust agreement. Trustees have fiduciary obligations and are held to exceptionally high legal standards, “the most important of which are the duties of loyalty and care, and the duty to act in accordance with the terms of the trust agreement.” Given the seriousness of the role, trustee bonds are often required. Essentially, a trustee bond is a specific type of fiduciary bond that protects the interests of the trust and its beneficiaries in accordance with applicable state law. As a leading national provider of many types of fiduciary bonds, Colonial Surety makes it easy and efficient to obtain trustee bonds: Just get a quote online, fill out the information, and enter a payment method. Then, simply print or e-file the bond from anywhere.
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