What’s Your Plan? Protecting your most important asset: Your family

The subjects today…  Why planning for long-term care must be discussed with your family.  What’s at risk: It’s much more than your health.  Developing a plan to protect your family and finances.  What will pay for your plan.  How I can help you attain your goals.

What I won’t do today is…  Use numbers, charts and statistics to tell you something you already know: you are likely to live a long life.  Spend time talking about what will happen to you if you do need long-term care.

What I will do is to…  Give you insight into what a long-term illness does to a family.  Speak to the consequences living a long life will have on your best thought out retirement plan.  Discuss the options for financing your care should you need it.  Listen.

Step 1: Living a long life Do you know what was good about the “good old days”?

Not a whole lot if you got sick…  Do you know what was likely to happen if you had…  A stroke; or  A heart attack; or  Cancer?

That’s correct

Think about surviving these death sentences today…

“Advances begin to tame cancer…” A June 6th, 2003 Boston Globe story reported that…  Rapid advances in treating cancer have dramatically increased life expectancy for cancer patients.  This is particularly true with deadlier forms of cancer such as pancreatic and brain tumors.  “By 2015 cancer will be seen as a chronic disease,” states Dr. Andrew C. von Eschenbach, Director of the National Cancer Institute.

“Breast cancer drug hailed”… The October 20th 2005 edition of the Boston Globe reports:  Researchers have concluded that the genetically altered drug Herceptin cuts in half the reoccurrence of breast cancer in woman with the gene mutation known as HER2-positive.  ''The results are simply stunning," a leading oncologist, Dr. Gabriel Hortobagyi, wrote in an editorial accompanying the studies in The New England Journal of Medicine.

 When you don’t die of the types of illnesses that would have likely killed you in the “good old days”…  You live.  When you live you get old.  When you get old you get sick.  When you get sick you need care.

Living a long life could well be in your future. Planning for it is now a necessity.

Failure to consider the consequences of needing long-term care risks the emotional and physical health of your family and the integrity of your retirement portfolio.

Reasonable people…  Understand they are likely to live a long life.  Understand they could need care if they lived long enough.  Are willing to consider taking action if they believe that needing care could have serious consequences to their family and retirement portfolio.

I believe that is why you are here today.

Some definitions…  Long-term care is generally described as providing care and services when a person is unable to perform activities of daily living (toileting, bathing, dressing, eating, transferring and continence) or has a severe cognitive impairment.  It requires primarily custodial, not skilled care.

Who do you think is most impacted by needing care over a period of years?

It’s not you…it’s your family  The question is not who will take care of you - your family will because they love you and are concerned for your safety. The important question is…  What providing care to you will have on their emotional and physical wellbeing.  Providing care to people who are chronically ill can make caregivers chronically ill.

 “But what if I don’t live a long life?”  If you are like my client’s you likely have a retirement portfolio that pays out to at least your early 90’s.  And like many of my clients you are likely concerned that there may not be enough to support your lifestyle and continuing commitments to your family and community after you retire.

 “That’s true, but what if I don’t live a long life?”  You may not but if you do and need care the consequences to your family could be so severe the subject must at least be discussed.

 “What if I don’t need care; everyone in my family was healthy until the day they died.”  Many of my clients have parents who need care. Here’s what they share in common… Their mom or dad never thought they would live a long life. And they didn’t until…they did. Their mom or dad never thought they would get sick and need care over a period of years. And they didn’t…until they did.

And none of them realized the consequences providing care would have on their families and retirement portfolios…until it was too late.

Step 2: Thinking about a plan Some thoughts that may help you maintain your independence

“I’m single. I don’t need a plan.”  Ironically single individuals have the most to lose if they need care.  How will you be able to remain in the community without a support system?  Have you thought about the pressure your siblings, nephews and nieces or friends would be under?  “I don’t want them to take care of me.”  What choice would they have if you don’t think about it?

Married but there are no children  Staying in the community could be difficult because you may be as frail as your spouse.  Making sure you bring in a care manager as quickly as possible will allow you to keep your spouse independent longer.  Assisted living may make sense as the illness progresses.

Married with children  This is a viable option for remaining in the community but you need to be sensitive to the stress it will place on the designated caregiver.  Even though you may not want your child or children to help, they may have no choice if you do not plan well ahead.

Single or widowed with children  Staying home if you need care may require one or more of your children to assist.  Again even if you do not want them to what choice would they have?  Thinking about a continuing care retirement community in the future may make sense; it provides independent living supported by assisted living should your illness progress.

Second marriages  Many couples hold their assets separate through elaborate pre-marital agreements. Have you thought about…  Who would provide care? If not, a child may object to your spouse’s decisions.  How that care would be paid for? It is likely that children will become involved if they believe a parent’s financial interests are not being handled properly.

Part 3: Paying for your plan How paying for care can impact your retirement portfolio

During working years…  You put together a portfolio that will both support a lifestyle during retirement and keep continuing commitments to your family and community.  The portfolio is allocated precisely for that purpose. It’s not likely there’s a lot income left over.  Like many of my clients the implied promise is that principal will remain intact because you don’t know how long you and your spouse will live and what may happen.

That portfolio is protected during working years…

Asset & Income Portfolio Protection Portfolio  Car   Family   House   Salary   Car insurance  Life & health insurance  Home owners  Disability income

What is protecting your retirement portfolio which includes your wealth and home from the risk of needing care?

Alan & Camille Richards are 43 years old. They have 2 children…  Their combined income is $150,000 per year.  The house is worth $450,000. It has a mortgage of $100,000.  Their retirement portfolio is just under $250,000.  One child is in private school, the other in college.  In addition they belong to a club, have modest credit card debt and purchase a car every 5 years.

Alan dies suddenly of a heart attack.

What has been allocated from the retirement portfolio and or equity in the house to pay for continuing obligations his wife will face?

Nothing…  Alan purchased life insurance to cover the expenses he knew would continue if he died unexpectedly.  Alan didn’t think he would die during working years. In fact, statistically he was correct.  He knew however that even though the risk might be low, the consequences would (not could) be catastrophic to his family.  Alan purchased life insurance for the same reason everyone purchases life insurance…

They love their family

Alan makes it to 78…  His passion is golf. Camille rides horses.  Their house is paid off and worth $800,000. Their portfolio is worth just under $900,000.  They love to travel.  Both have made a commitment to a favorite charity and their church.  They are helping their grandchildren.

Camille is diagnosed with Alzheimer’s.

What has been allocated from the retirement portfolio and their income to pay for her care for the next 8 to 10 years?

All of it. Where else can it come from?

Alan is now faced with how to pay for his wife’s custodial care. He looks into…

 Medicare but finds it is health insurance. Health insurance pays for skilled and or rehabilitative care only.  The VA is not an option for custodial care.  Medicaid and is told it will pay for custodial care but almost exclusively for a nursing home. Alan promises himself it is the last option. He is also told of the tax consequences and how difficult new laws enacted under the Deficit Reduction Act of 2005 make it to qualify for benefits…

Tax consequences of “Medicaid planning”  If Alan gifts his qualified assets to his children to qualify for benefits he faces an immediate federal and state tax.  Transferring assets with a low cost basis (such as stock and his home) may create a substantial tax liability when his children sell them. This is not the case if he owns these assets at his death.

The Deficit Reduction Act of 2005  The “look-back is increased to 5 years.  Prior to the new law attorneys could protect assets even in a crisis. That process is now severely compromised.  Applicants with more than $500,000 in home equity are not eligible for Medicaid.

 Since nothing was allocated to pay for care, Alan is now forced to reallocate the couple’s income to pay for it.  At a minimum their lifestyle is devastated and he is forced to make difficult decisions on what to spend money on.  Alan is now faced with the possibility of invading principal.  His children are now faced with re-orientating their lives to help provide care. What choice will they have.

 This is not a hypothetical. I have seen it happen all too often in my practice.  I want to take a few moments to discuss what steps you can take to avoid placing your family in this situation should you need care over a period of years.

Part 3: Finding the right solution Looking at long-term care insurance as an essential tool that protects your family and retirement portfolio.

Many people believe it protects them if they need care over a period of years…

It doesn’t

Long-term care insurance doesn’t protect you it protects your family…  You’ll be taken care of whether you have the product or not. What it does is pay for the types of care your family and friends will find the most time consuming, stressful and perhaps embarrassing.  You may not want them to, but respectfully, what choice will they have?

Many also believe it protects assets

Long-term care insurance protects your retirement portfolio…  Your retirement portfolio generates income to support your post-retirement lifestyle as well as keep prior commitments to your family and community. Principal must be preserved because you expect to live a long life and unanticipated expenses may develop.  Since nothing has been allocated from the income or principal to pay for care it means you may be forced to reallocate both to pay for it.  At a minimum your lifestyle and commitments could be seriously compromised. In a worst case scenario you may have to invade principal placing a surviving spouse at risk financially.

A final thought…  Life insurance protects your family and finances during working years from the risk of an unexpected death. Small risk + huge consequences to your family and finances = Life insurance.  Long-term care insurance protects your family and finances from the risk of not dying. Small risk of living a long life (or needing care) + huge consequences to your family and finances = Long-term care insurance.

At the end of the day…  My clients purchase long-term care insurance for the same reason they purchase life insurance…  They love their families.

About my company…

Long-term care insurance