When I discuss estate planning with clients I try and explain the importance of planning for the cost of long-term care within their estate plan. The cost of long-term care could put your estate assets at risk if you failed to plan for the possibility ahead of time. One option for covering the cost of this kind of care is to purchase Long-Term Care insurance; however, long-term care insurance is not right for everyone.
Planning for Long-Term Care Should Be Part of Your Estate Plan
Long-term care planning should be part of every estate plan given the probability that you will need care and the high cost of that care. When you enter your retirement years (at age 65) you will already stand a 50 percent chance of eventually needing some type of long-term care. With every passing year, those odds increase. If you are married, your spouse shares the same odds of needing LTC. Nationwide the average cost of a year in LTC was over $100,000 for 2019. In North Carolina, a year of LTC averaged just over $90,000 that same year. What makes the cost of LTC so problematic though is that neither private health insurance policies nor Medicare will cover expenses related to LTC. For this reason, incorporating long-term care planning into your overall estate plan is crucial.
Planning for long-term care starts as a budgetary assessment. You may have to do some research. Ask yourself what long-term care will cost. If you’re married or have a partner, ask what will be your combined costs if one of us needs LTC. Consider the costs of in home care and care in a nursing home. Consider whether should you need skilled nursing care whether additional private outside aides would be helpful. Then compare your guaranteed income from sources such as pensions or social security. Add expected required minimum distributions from retirement accounts. Then ask what is the budgetary deficit between the long term care costs and your expected income. Can you savings and investments be expected to cover the shortfall? Consider what your estate planning goals. In the end, your decision may be driven by asset protection as well as health care planning.
Long-Term Care Insurance
As the name implies, long-term care insurance is a separate insurance policy that specifically covers costs associated with LTC. Understanding the details of an LTC policy can be challenging, and no two policies are exactly the same. Before you consider purchasing an LTC policy it is imperative that you are clear on what the policy does cover, and what it doesn’t cover. For example, an LTC insurance policy may cover some, or all, of the following:
- Nursing home care
- Home health care
- Respite care
- Hospice care
- Personal care in your home
- Services in assisted living facilities
- Services in adult day care centers
- Services in other community facilities
Like any other type of insurance, a long-term care insurance policy may also exclude certain types of treatment or care. It is fairly common, for instance for an LTC policy to exclude mental or nervous disorders or diseases, other than Alzheimer’s disease or dementia. They also frequently exclude alcohol or drug addiction as well as attempted suicide or self-inflicted injuries. When evaluating an LTC policy, pay particular attention to the following potential exclusions or limitations:
- The lifetime cost of the policy. Premiums will be higher the older you are when you take out a policy, and typically those premiums will increase over the life of the policy. Of course if you buy the policy when you are younger the premium will be lower, but a lower annual premium will add up if you are paying that premium for 20, 30, or even 40 years before you actually use the coverage.
- Waiting period. Many LTC policies have a waiting period during which time the policy will not cover expenses, meaning you will be responsible for covering them.
- Maximum benefits. Be sure you understand if the policy has an annual or lifetime maximum because you will be responsible for any expenses that exceed those maximums.
- Coverage away from home. Will the policy cover you outside of the U.S.? If not, are you planning to remain in the U.S. when you retire?
- Automatic termination. Some LTC policies terminate at a specific age or after a specific number of years, once again leaving you responsible for additional expenses.
Is Medicaid Planning a Better Choice?
Only you can decide if long-term care insurance is right for you; however, talk to your estate planning attorney about Medicaid planning before deciding to purchase a LTC insurance policy. The cost of an LTC insurance policy can be prohibitive for many people. While Medicare will not cover LTC expenses, Medicaid will. Medicaid eligibility can be problematic though if you failed to plan ahead. If there is a possibility you will need to rely on Medicaid in the future, including a Medicaid planning component in your estate plan now is imperative.
At Clarity Legal Group we use a broad variety of planning devices to protect our client’s estate plans and fulfill their long-term care planning goals. LTC planning, like most of what we do, starts with defining your options, considering the alternatives, defining specifically what getting it right looks like for you, and then putting the plan in place. Our professionals will be there to support you and your family thereafter.
Contact Durham Chapel Hill Medicaid Planning Attorneys
If you have additional questions or concerns regarding long-term care insurance or Medicaid planning, please contact the Durham Chapel Hill Medicaid planning attorneys at Clarity Legal Group by calling us at 919-484-0012 or contact us online.