Protecting Your Legacy from the Cost of Caregiving – Part 1

In last month’s issue of the newsletter, we discussed what goes into legacy planning, from a financial and non-financial point of view. There are many steps you can take to set yourself up financially and to leave a financial legacy for your loved ones by doing good planning and by building the proper legal and financial structures. However, often with aging comes more significant health concerns that can result in the need for ongoing caregiving. In previous generations, there was often an expectation that family would step in under those circumstances to take care of their aging loved ones. In today’s society with families often living long distances from each other and family dynamics changing, relying on family is not a viable option for many people. As a result, other sources of caregiving may be needed, and the cost of that care can be significant, with the potential to derail the plans you’ve made. If you find yourself in need of long-term care services and have to pay for it, there are a number of ways you can do it.

Relying on Government Services to Pay for Care
Many people are aware that there are governmental services that can take over to pay for the cost of caregiving if necessary, but they may not understand the details. The first item of clarification is that, generally speaking, Medicare is not the source of funding to pay for long-term care. Medicare is health insurance and is intended to cover costs for conditions that are expected to be resolved. Medicaid, as a government program designed to provide assistance to low-income individuals and families, is the service that can cover the cost of long-term care. However, there are requirements you have to meet in order to receive those benefits. While Medicaid is a federal program, it is administered by the states, so each state has the ability to set its criteria for qualification. One of the requirements is having a monthly income below $2,382 (for an individual and varies by state), and the qualification metric many people are familiar with is asset level. Generally, the individual needing care must have assets of $2,000 or less to qualify for Medicaid. If the individual is married, there are provisions that allow the spouse to maintain assets above that level, but the bottom line is that your available means to pay for care have to be very slim, which creates other financial risks. There are estate planning measures you can put in place to shield assets from being counted for the purposes of Medicaid eligibility, but that requires the creation of a special trust with its associated cost and is subject to lookback periods, which could nullify the planning.

Self-Insuring for the Cost of Care with Income & Assets
The opposite end of the spectrum from relying on Medicaid to cover the cost of care is to fully self-insure. If you have accumulated significant enough assets and/or have enough ongoing income in your older age, this may be a viable solution. With a nationwide median cost of long-term care running at close to $60,000 per year on the low end for part-time in-home care and nearly $110,000 per year for private facility care, and the fact that these costs are growing at a rate faster than core inflation, having the means to self-insure can be very challenging. For individuals or couples with Social Security income, Pension income, perhaps other sources of passive income, and income available from savings and investment assets, depending on the type of care they choose, self-insuring may be more achievable. However, using those resources could deplete the available cushion they have to take care of other needs and could limit their ability to leave a desired inheritance for their loved ones.

Risk to an Insurance Company
If you don’t want to have to completely spend down your assets or engage in the legal maneuvering that may be required to be eligible for government assistance, or if you want to lessen the need to use a large chunk of your own assets, another alternative is to invest in insurance protection that can cover cost associated with caregiving. Years ago, the primary insurance solution for long-term care was a Long-Term Care policy that reimbursed expenses incurred for caregiving. Many people are familiar with those types of policies but shied away from them because they tended to have high premiums, and if you didn’t have a caregiving need, those premium dollars felt like they were wasted. In recent years, however, new solutions have come to the market that provide long-term care protection but with greater flexibility. Two of the most popular solutions are asset-based policies and life insurance policies with riders (benefit enhancements) that can be used to pay for long-term care expenses. There are a number of variations available that deserve to be covered more fully, so in our next issue of the newsletter, we will follow up with a Part 2 of this discussion and do a deeper breakdown of some of the insurance solutions that you can use to meet your caregiving needs.

Stewardship Emphasis

Most of us want to live a long life, but we’d rather avoid the affects of aging. With proper planning, those golden years can still be comfortable even if your health isn’t perfect.

The Empowerment Channel |Volume CCXI | Dedicated to Promoting Financial Education through Stewardship