When you were young, you looked to your parents to take care of you. However, at some point, the tides may change, and it may be your turn to look after your parents’ best interests. Though planning for long-term care may not be a priority now, entering this phase of life is usually inevitable.
15% of the population today is over 65, and this is expected to rise to 24% by 2060. Cognitive decline for financial tasks can begin after age 60. With change often gradual, many seniors may not realize that their abilities have started to decline. Additionally, it is estimated that one in ten Americans over age 65, and a third of those over age 85, have Alzheimer’s.
Age, cognitive disease, and sudden events - such as a stroke - can require families to make important decisions. With the estimated cost of a private room in a nursing home in Massachusetts at $410/day or $12,470/month according to an independent Insurance Advisor, Matthew Goldwasser at Goldwasser & Company, life savings can quickly dwindle, contrary to wishes that assets be inherited by future generations. Children may find themselves paying for a portion of care or providing it themselves. According to an AARP research study, more than 3 in 4 family caregivers (78%) report incurring out-of-pocket costs as a result of caregiving.
Though not always a pleasant topic, discussing elderly care and financial readiness is important. What follows are some important strategies caregivers and their aging parents should consider along with some FAQ’s from our clients.
1. Let’s Talk - It All Starts with a Conversation
Going into a retirement home or other care facility is often older parents’ greatest fear, and talking about it can be difficult. But waiting too long can limit parents’ options and leave children guessing at their wishes. As parents get older, it’s important to learn about what their needs and wishes are for their future.
Look for opportunities to gently broach the topic while parents still have good health. Children might ask: What are your desires later in life? Have you paid off the mortgage? What type of insurance do you have?
Long-term care planning is a topic both parents and children should initiate. Time, preparation and resources can help parents and children to ensure that:
- The proper documents are in place
- There is money set aside to pay for long-term care
- Moving into a retirement home is put off for as long as desirable versus going directly to a retirement home, or potentially altogether with staged options (home care, assisted living, etc.)
- Parents can make their own decisions and let their wishes be known for the future, versus caregivers having to guess at them later
2. Take Inventory – Prepare a Record of All Personal and Financial Information
Create a financial inventory. You might ask if your parents have created estate planning documents, such as a power of attorney, health care proxy, living will, and if beneficiaries on life insurance policies, retirement savings plans, etc. are updated. The following is information to collect and record:
- Personal Information – Social security numbers and paperwork such as birth and marriage certificates.
- Financial Planning – Name and contact information for advisor, accountant, or other services.
- Financial Information – Bank accounts, investment accounts, information about pensions and life insurance annuities, including policy numbers, company names.
- Estate Planning – Name and contact information of estate planning attorney.
- Estate Planning Documents:
- Financial Power of Attorney (POA) – The financial POA enables parents to appoint an agent or agents, to make financial decisions on their behalf.
- Health Care Proxy (HCP) – HCP is also referred to as a medical POA or durable POA for healthcare. This document can be used to appoint the same or a different agent than who is listed as the financial POA to make medical decisions.
- Will – The estate plan directing who will administer the estate and who will inherit which assets.
- Trust – Holds assets and directs how funds such as 401(k)s and IRAs will be distributed.
- Insurance Information – Policy information for any life insurance, disability insurance and long-term care insurance.
- Medical Information – Policy information and health care provider names and contact, medication, medical history.
- Funeral and/or Burial Plans – Final wishes, deeds to cemetery plots, payment information.
- Location of Other Important Records – Keys to safe-deposit boxes, real estate deeds, vehicle titles and registration.
3. Meet with a Financial Advisor
Ask your parents to introduce you to their financial advisor, if they have one. If they don’t have one, contact your advisor or look for a financial planning expert who also has elder care experience to help plan and protect their assets. He or she should address your financial needs for where you and your parents are now, as well as for all of the coming stages of life.
A good financial advisor can help children to ask the right questions of parents, as well as work with parents to determine how much money they will need to sustain a comfortable life and potential ways to use resources better. It is best to work with an advisor that takes a complete, holistic approach to get to know you and your specific issues. Expect your advisor to ask about what is important to you and your family and to assess your complete financial picture, from employee benefits, stock options, assets inside and outside your plan, tax planning, paying for higher education, estate planning and more.
It is important to meet with a financial advisor to consider the ability to protect assets, as well as preserve financial interests of a spouse, who may not yet need long-term care. Professionals might also assess opportunities to leverage assets or quickly make the individual Medicaid-eligible to help pay costs. If a plan is not already in place and an event happens, parents and/or caregivers might otherwise need to seek advice quickly to address the status of a sick spouse, look at opportunities to reposition assets, and potentially annuitize income streams, so only a portion of assets go to the retirement home.
Here are some Frequently Asked Questions we hear from clients at GW & Wade.
What are the best options to help pay for long-term care?
One option is to determine if your parent amassed enough assets or wealth to be able to pay for healthcare and assisted living costs out of pocket. For individuals that can answer yes, self-insurance may be an option. For instance, individuals with $10M or more in net worth may determine with their financial advisor that they can afford to pay for an extended stay in a retirement home and/or could potentially sell a second or third home to pay for expenses if needed.
Another option is purchasing a long-term care (LTC) policy, a form of insurance that can be used to pay for healthcare expenses in older age. Matthew Goldwasser explains and breaks down the policy options for us:
According to Matthew, for years, clients who did not want to self-insure the potential risk of needing substantial daily assistance, a stand-alone long-term care insurance policy was the only way to guard against future long-term healthcare needs caused by an illness, injury or decreased cognitive ability. The trouble is that the actuaries made several incorrect assumptions which had led to premiums increasing substantially. First, they assumed more people would lapse their policies than actually did. Second, people received more benefits than actuaries had predicted. Third, investment returns had been lower than what the insurers had predicted. Finally, underwriting for long-term care policies was not as stringent as it should have been and this led to people obtaining insurance that shouldn’t have. This created a perfect storm which directly led to the trends we've seen over the last several years where many insurance companies have stopped selling LTC, and the ones that remain have both limited the benefits clients can purchase and increased the rates not only for new policyholders, but for in force customers as well. The premium increases have been in excess of 100% in some cases. The end result of the rate hikes and exodus of insurers has led to the creation of newer 'hybrid' long-term care insurance which combines life insurance with long-term care.
The two chief complaints of traditional LTC policies are 1) the premiums are not contractually guaranteed, and 2) it's a use it or lose it proposition—if you never go out on claim then all the premiums you paid in are lost. Because of this, hybrid policies were born. Hybrids are built on a permanent life insurance chassis and when LTC assistance is needed the death benefit is accelerated to pay for that care. The death benefit of the policy reduces dollar for dollar on whatever the client spends on their LTC claims. Hybrid policies have a contractually guaranteed premium and return on the premium invested either in the form of LTC benefits, a death benefit or a combination of the two.
For any insurance or long-term care options, the solution is best assessed holistically with a financial advisor. We recommend sitting down with your advisor to determine what the best solution is for you and your family.
Can parents use gifting as a way to protect children's and grandchildren’s inheritance?
Gifting can be used to prevent assets from being used to pay for medical expenses. An individual can gift up to $15,000 to one or more people tax-free each year. Two parents, can gift $30,000 to each of their children, grandchildren, children’s spouses, etc. without any gift tax implications. Also, much larger gifts are possible, including the gifting of real estate. But all gifting should be done with the help of an expert to avoid both tax problems and the Medicaid look back periods that can claw back gifts made within 5 years of a Medicaid application. Talk with your financial advisor or an elder law attorney before making major gifting decisions, to avoid the “cure being worse than the disease”—such as children later finding out they owe a significant amount in capital gains on a home that was gifted to them. Additionally, it is important to note that often an agent listed as the POA is not permitted to gift or transfer money or other property unless this is specifically indicated in this document.
What are your parents’ wishes for the future and how can you help to ensure they can best enjoy their later years? Though talking about it can be difficult, it is a necessary first step. Contact us to find out how you can better prepare for the next phases of life. We help our clients connect all aspects of their financial lives: income tax planning, investment management, retirement, and estate planning services.
Matthew Goldwasser: Matthew is a Managing Partner at Goldwasser & Company, LLC. He has 18 years of experience in advising clients in the areas of estate and business continuity planning. He is also a member of the National Association of Insurance and Financial Advisors (NAIFA) and the Boston Estate Planning Council (BEPC) and is a Qualifying and Life member of the Million Dollar Round Table (MDRT). His primary focus is the design, implementation, and monitoring of life, long-term care and disability insurance portfolios for individuals, high net worth families and small businesses. To learn more about Matthew visit his website.
The information presented above is not a recommendation to buy, sell, hold, or rollover any asset, including any insurance product, adopt any investment strategy, or use a particular account type. This information is general in nature and is not intended to represent specific tax, investment or professional advice. No client or prospective client should assume that the above information serves as the receipt of, or a substitute for, personalized individual advice from GW & Wade, LLC, which can only be provided through a formal advisory relationship.
Clients of the firm who have specific questions should contact their GW & Wade Counselor. All other inquiries, including any inquiry concerning a potential advisory relationship with GW & Wade, should be directed to:
Laurie W. Gerber, Client Development Manager
GW & Wade, LLC