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            Last week I was explaining the problem with IRAs and long term care.  If you need care at $125,000 per year or more but want to protect your IRA, what are your options?  It’s always easiest to illustrate by way of an example.             Bill has an IRA worth $1.2 million and he doesn’t have long term care insurance.  Bill has two ways to pay for his care.  Use his own money or apply for Medicaid benefits.  However, Bill must have no more than $2000 in assets to his name if he wants to qualify for Medicaid (a bit more if he is married).  So, Bill must first spend the $1.2 million before Medicaid will begin paying.             “What about if Bill transfers his money out of his name”, you may ask?  That’s what we call 5 year trust planning.  Move the assets into a trust, leave enough to cover 5 years and then Bill can qualify for Medicaid.             While statistically the odds are that Bill will need the care, we can’t say for sure.  What if he passes away peacefully in his sleep and never needs care?  Pulling $1.2 million out of his IRA will cost him somewhere in the

            IRAs, or any retirement accounts really, have always been a problem when it comes to long term care.  They are a great vehicle for accumulating wealth.  You can put away savings in an account which will earn interest on a tax deferred basis.  No income tax is paid on the growth until you start taking money out. In some cases you can put pretax dollars from your earnings into the account, meaning you don’t have to pay income taxes on that portion (again until you take the money out).  As most people know, the government requires you to start drawing money out of the retirement account after you have turned age 70 and ½, according to required minimum distribution rules.             Since Congress authorized these accounts in the 1970’s the financial investment community has recognized the opportunity they have created and has spent a lot of time and expense encouraging Americans to open and fund them.  The benefits are well documented but not the downside.  “What might those be,” you ask?             While the government excuses income tax on the growth in these accounts, it doesn’t excuse the tax forever.  As I stated, you must start withdrawing money after you reach age

            Last week I was telling you about using your own money, what we call legacy assets, to self-insure for long term care.  This week I’ll walk you through an example of how that can work.             Mary is 73 years old.  She has high blood pressure, for which she takes medication but otherwise is in relatively good health for her age.  She does not have long term care insurance, having considered and then passed it up 10 years ago.  Now she feels it is too expensive, if she can even find a company to offer it.  She also hears her friends complain about the rate increases they receive annually.  If she must keep the policy in place for 10 or 20 years before ever needing care what would she end up paying in premiums?             For Mary, self-insuring using a life insurance policy with riders for long term care makes a lot of sense.  Mary has $400,000 in CDs and money market accounts.  She owns her home worth $450,000 and she has IRAs totaling another $600,000.  Mary’s income from Social Security and a small pension comes to $3000 per month.             By repositioning $200,000 to this life insurance policy, Mary will receive

            It seems that every year we receive more calls from our clients who have long term care insurance but are struggling with the decision about whether to keep it in the face of rising premiums.  The story I wrote about the past two weeks is an example of someone who reduced his coverage with some severe consequences.             There are, however, other alternatives.  I wrote about some of those options last year, what are called asset based long term care insurance products.  It is, in essence, self-insuring using what we call “legacy assets”.  These are assets in retirees’ portfolios that do not support their lifestyle, but are available in case of some serious emergency (rainy day money!).  These assets if (hopefully) never needed, will pass to the clients’ children or charity after they die.  The one most significant risk to those assets is the need to pay for long term care.             The ideal planning approach  would be to “invest” some of these legacy assets in such a way that the assets can be worth as much as possible whenever they may be needed to pay for care . . . in the home, assisted living facility or nursing home.  If

            Last week we were talking about Bob and his dad, Jim.  Jim had always told Bob that he had long term care insurance to cover the cost of his care.  However, now Bob was discovering that the policy isn’t what Jim represented it to be.             As I explained last week, Bob learned that Jim has $75 per day of coverage for assisted living care and $150 per day if he moves to a nursing home, which Jim does not yet need.  Bob wants to keep his dad at assisted living level care as long as he can.  That 50% limit was the bad news.  However, the good news, or so Bob thought, was the fact that Jim had an inflation rider that increases the daily rate by 5% of the original rate each year.             But when Bob called the insurance company to start the process of putting in a claim, he was informed that his dad had dropped the inflation rider several years ago.   Jim had received a letter from the insurance company about a rate increase.  Unbeknownst to Bob, and concerned about affording the premium on the policy, he exercised an option to keep the premium the same

      Bob’s dad, Jim can no longer stay in his home alone. His dementia is advancing and Bob is now ready to move Jim to an assisted living facility. Jim had always told Bob not to worry about how to pay for care if he needs it because he has a long term care insurance policy but Bob had never actually seen it.       Now that he wants to put in a claim for benefits he looked thru Jim’s papers and found the policy. Jim has a traditional long term care insurance policy. It pays up to a certain dollar amount per day for long term care, in his case $150 per day. This confirmed what his dad had told him for years. There is a lifetime cap as well. In Jim’s case the lifetime limit is $164,250. The policy will last Jim 3 years at the maximum rate of $150 per day. If he needs less than $150 a day of care then the policy could pay out over a longer period of time.       When Bob looked further, however, he saw some problems. Generally, long term care insurance policies can cover home care, assisted living care and nursing home care