Last week I was talking about the difficulties in funding long term care through long term care insurance or Medicaid. Insurance companies are getting out of the long term care market entirely or drastically raising premiums. Medicaid, the primary government program that covers long term care, is still a fall back for many. But, there are gaps in terms of what it will and will not cover, and it is increasingly difficult for many to navigate the Medicaid system.
This is especially so given the 2 objectives most of our clients want to achieve – making sure they have enough money to meet their own needs but also passing on a legacy to their children and grandchildren. Without proper planning for long term care, however, the first objective may overwhelm the second, making it unachievable.
That’s where long term care insurance has sometimes helped. It’s also where, what I call the legal solution that we often employ – 5 year planning using trusts – has also helped. But, sometimes there is no long term care insurance, it’s too late to get it and the legal solution can only go so far.
Self funding with asset based long term care financial products just might be the answer. As some insurance companies have left the long term care insurance market, others are now offering alternative ways to fund the care – life insurance or annuities.
These products allow your money to grow tax deferred. It can then be used to pay for long term care and, unlike traditional long term care insurance you don’t have to worry about “using it or losing it”. A death benefit is paid to your heirs if you don’t use it (or only use some).
The longer you wait until you start drawing out the investment, the more time to build up the account value for use as long term care. While these investments don’t return the higher rates that can be gained in the market, they also don’t put your principal at risk, meaning you won’t lose any of it if there is another 10 to 30% market correction. And for those who have their money sitting in CDs and cash earning less than 1%, the higher rates are a clear bonus.
For many of these products, there are not the same underwriting requirements as exist for long term care insurance. Whereas a diagnosis of dementia or being age 75 or older would preclude LTCI entirely, these asset based products may still be an option, even as late as age 85.
For our clients with large IRA accounts who want to protect some of that account for loved ones, moving the money to a trust results in a large income tax bill because the account can no longer remain tax deferred. However, purchasing asset based long term products within the IRA can allow the account to remain tax deferred, bump up the income value significantly if long term care is needed and provide a death benefit if not needed.
For more information you can email me at firstname.lastname@example.org.