Most of us will need some form of long-term care as we age—and long-term care is notoriously expensive. While wealthy families may not need to worry about the cost of care, failure to plan for these expenses can jeopardize a family’s long-term plan and legacy.
Let’s walk through how you might approach long-term care as you age, from provider options to funding your care.
What is long-term care?
We tend to use the term long-term care casually to refer to any prolonged condition or illness. The more technical definition, however, is custodial care or long-term services and support, encompassing both medical and nonmedical care.
This definition matters, as it tends to guide what health insurance providers do and don’t cover. Traditional medical insurance Medicare (Parts A and B) and employer-sponsored health insurance plans are designed to cover medical expenses only. So if a condition or illness persists such that you need non-medical care, that support is rarely covered.
As an example: If you fall and break your hip, your initial hospital visit, and possible surgery, will likely be covered by your health insurance. However, if you need additional support at home as you get back on your feet, those expenses are generally paid by the patient.
Long-term care facilities can also be categorized along these lines. If you’re admitted to a skilled nursing facility, insurance treats it differently than an assisted living facility, even though we tend to refer to both as nursing homes in casual conversation.
Wealthy families and individuals may have access to more sophisticated support than the hospital and/or nursing facilities typically discussed in articles about long-term care. For instance, you may be able to ‘age at home’ care by hiring at-home support, like private nurses, concierge medicine, or similar.
Products to help pay for long-term care
Just because you have the money to pay for long-term care doesn’t mean that you should dip into your savings as a first resort. It’s important to consider your full portfolio of assets as part of this planning.
- How many of your assets are liquid? If you need to liquidate assets to pay for care, it could create logistical challenges at a time when you’d rather be focusing on rest and recovery. (This is true even if you’re working with a team of professionals.)
- Have you earmarked certain assets to be passed on to heirs or included in a legacy plan?
- It can be difficult to know the total cost of long-term care, as you may not be sure how much support you’ll need or for how long.
Some traditional products may be able to help cover long-term care costs. Most prominently, health savings accounts (HSAs) offer a triple tax advantage and are designed to be used for medical expenses in retirement. If you have access to an HSA, this can be a great choice.
Long-term care insurance may be an option to consider if you’re hoping to preserve your assets as they are. These policies can be expensive, however, and may carry significant fine print, so it’s important to choose carefully. Ideally, you’d select a policy early enough that you don’t feel any pressure when shopping for or selecting a plan.
Certain annuities can be used to generate an income stream intended to fund long-term care. In fact, some annuities are being designed specifically for this purpose, or to include a long-term care rider that adjusts the terms of the product if a long-term care situation arises.
Some life insurance plans also allow for long-term care riders, however, this should only be considered if you are already enrolled in a life insurance plan that meets your goals.
As with any financial product, it’s important to understand the fine print, and we recommend working with a financial advisor who can help ensure you fully understand the pros and cons of these products and policies.
Incorporating long-term care into your estate plan
If your goal is to protect your assets and estate from liquidation should your long-term care expenses grow, you might consider estate planning tools instead of (or in addition to) any insurance products.
For instance, you can set up a long-term care trust specifically for this purpose. Directed trusts allow you to designate a caregiver and/or list distribution provisions that relate to medical conditions, care requirements, and other support. You may be able to build these types of conditions into other trusts not specifically designed for this purpose, too, such as a spousal lifetime access trust (SLAT).
In general, these trusts are irrevocable, meaning they cannot be terminated or amended since once you fund them, the money is no longer yours. While this may feel restrictive, it can also create a tax planning opportunity, particularly if you’re concerned your estate might trigger state or federal estate and/or inheritance taxes.
One clear benefit to this approach? It requires you to discuss your wishes with anyone involved in your estate plan, including relevant family members. You can formally outline your wishes. This helps ensure your will is carried out if you become incapacitated. It can also help avoid the type of infighting that may ensue if your family members disagree on a treatment plan in the future.
If you have questions about the best way to approach planning (and paying) for long-term care, set up a consultation today. Our team can help you take your full financial picture into account, and we can work with your broader support team to help you execute.
