Long Term Care Insurance in your Retirement Plan

Include long term care insurance in your retirement plan to protect your legacy from rising costs such as the nursing home, assisted living and in-home care.

Roughly 60% of those turning 65 can anticipate using some form of long term care in their lives, according to the U.S. Health and Human Services Department. It may be a nursing home, assisted living, or in-home care.  Long term care insurance is a great way to cover those costs.

CNBC’s recent article, “Not having long-term care insurance can be ‘the single biggest devastator’ of your financial plan,” reports that over 8 million Americans have long term care insurance. However, the cost of that insurance is rising. This increase is because of several factors, including the fact that companies underpriced their policies for years and misjudged how many would drop coverage.

Because of those rising premiums, some individuals may choose self-insurance. That means saving a pool of money to earmark for long term care. Coverage is also available through Medicaid, which has eligibility requirements.

Even with these increases, you should consider purchasing some form of coverage. This is because not being insured can be the biggest devastator of a financial plan.

The rule of thumb has been to buy LTC coverage at age 55. However, it really depends on your situation. The big unknown is health, and the odds of being able to qualify for coverage at age 60, compared to age 30 or 40 is vastly different.  See here for a fuller description.  https://www.galliganmanning.com/when-should-i-consider-long-term-care-insurance/

A traditional LTC policy will cover the costs of care for a certain period of time, generally up to six years. The amount of coverage is based on the average cost of care for your location. Most insurers offer it in the form of a monthly benefit, and possibly with some inflation protection.

There’s also a hybrid policy that covers long term care costs but becomes life insurance paid to heirs, if it’s not used. Of the 350,000 Americans who purchased long term care protection in 2018, 85% chose the hybrid coverage. It’s also called combo or linked-benefit. The big difference is price: you’ll pay more for the hybrid policy.

Medicaid is another option, particularly if you don’t have a way to save. To be eligible, you must meet financial guidelines.  Medicaid also looks back five years into your finances, so if you have given away any money during that period of time, it may be subject to penalty.

Long term care insurance is a great tool to address rising long term care costs in your retirement.  If you don’t have or can’t get a policy that’s right for you, an elder law attorney can help explore Medicaid or other benefit options to cover your long term care needs.

Reference: CNBC (October 14, 2019) “Not having long-term care insurance can be ‘the single biggest devastator’ of your financial plan”

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The Biggest Estate Planning Mistakes to Avoid

Some of the biggest estate planning mistakes are easy to avoid, including having an up-to-date will, checking beneficiary designations and planning younger.

Nobody likes to plan for events like aging, incapacity, or death. However, failing to do so can cause families burdens and grief, thousands of dollars and hundreds of hours.

Fox Business’ recent article, “Here are the top estate planning mistakes to avoid,” says that planning for life’s unexpected events is critical. However, it can often be a hard process to navigate. Let’s look at the top estate planning mistakes to avoid, according to industry experts:

  1. Failing to sign a will (or one that can be located). The biggest mistake is simply not having a will. I’ve written on this often (see here for example https://www.galliganmanning.com/everyone-needs-an-estate-plan/), but unfortunately clients consistently say they didn’t think they needed a will. Estate planning is critically important to protect you, your family and your hard-earned assets—during your lifetime, in the event of your incapacity, and upon your death.  In addition to having a will, it needs to be findable. The Wall Street Journal says that the biggest estate planning error is simply losing a will. Make sure your family has access to your estate planning documents.
  2. Failing to name and update beneficiaries. An asset with a beneficiary designation supersedes any terms in a will. Review your 401(k), IRA, life insurance, and any other accounts with beneficiaries after any significant life event. If you don’t have the proper beneficiary designations, income tax on retirement accounts may have to be paid sooner. This may lead to increased income tax liability, and the designation of a beneficiary on a life insurance policy can affect whether the proceeds are subject to creditors’ claims.  In many cases where clients tried to avoid probate, one broken beneficiary designation becomes the sole reason to probate the will.

There’s another mistake that impacts people with minor children, which is naming a guardian for minor children and then naming that person as beneficiary of their life insurance, instead of leaving it to a trust for the child. A minor child can’t receive that money. It also exposes the money to the beneficiary’s creditors and spouse.

  1. Failing to consider powers of attorney for adult children. When your children reach age 18, they’re adults in the eyes of the law. If something unfortunate happens to them, you may be left without any say in their treatment. In the event that an 18-year-old becomes ill or has an accident, a hospital won’t consult with their parents if a power of attorney for health care isn’t in place. Unless a power of attorney for property is signed, a parent may not be able to take care of bills, make investment decisions and pay taxes without the child’s signature. This could create an issue when your child is in college—especially if he or she is attending school abroad. It is very important that when your child turns 18 that you have powers of attorney put into place.

If you have any of these estate planning mistakes in your plan, please contact us for a consultation to fix these mistakes for you and your family.

Reference: Fox Business (October 15, 2019) “Here are the top estate planning mistakes to avoid”

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I have a Trust, so why do I Need a Pour Over Will?

Even if you utilize a trust in your estate plan, it is essential to have a “pour over will” that directs assets at your death to your trust through probate.

If the goal of estate planning is to avoid probate, it seems counter intuitive that one would sign a will, but the pour over will is an essential part of some estate plans, reports the Times Herald-Record’s article “Pour-over will a safety net for a living trust.”

If a person dies with assets in their name alone and without some contractual beneficiary which avoids probate (e.g. life insurance) those assets go through probate. The pour over will names the trust as the beneficiary of probate assets, so the trust controls who receives the inheritance. The pour over will works as a backup plan to the trust, and it also revokes past wills and codicils.

Living trusts became more widely used after a 1991 AARP study concluded that families should be using trusts rather than wills. Trusts were suddenly not just for the wealthy. Middle class people started using trusts rather than wills, to save time and money and avoid estate battles among family members. Trusts also served to keep financial and personal affairs private. Wills that are probated are public documents that anyone can review.  See here for more details.  https://www.galliganmanning.com/how-do-trusts-work-in-your-estate-plan/

The one downfall to a trust is that it must be properly funded to work right.  As I said earlier, you probate assets in your name that do not pass by contractual obligation.  So, the trust must either own assets itself (“funding it”), have assets pass to it (e.g. the life insurance pays to the trust) or you must have some other mechanism for an asset to get to the trust or beneficiaries, such as a “joint tenants with rights of survivorship” account.  The pour over will is the safety net that makes sure if you missed something or obtained an asset you didn’t expect, there is still a way to get that asset to the trust and ultimately to your beneficiaries after death.

Speak with an experienced estate planning attorney to talk about how probate may impact your heirs and see if they believe the use of a trust and a pour over will would make the most sense for your family, and how best to fund the trust to accomplish your goals.

Reference: Times Herald-Record (Sep. 13, 2019) “Pour-over will a safety net for a living trust.”

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