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What is Long-Term Care Planning?

what is long term care planning
Kevin Wenke

Kevin Wenke

Owner at Decision Tree Financial. CFP. CLU

So, something has you wondering about long-term care. I understand. Who does not know someone who has lost their ability to remain 100% independent and then struggle to pay for certain services so they can preserve their assets and keep their dignity?

You hope that it doesn’t happen to you but you realize it might…

When someone says “long-term care” they are referring to the care someone needs to deal with a chronic health condition.

Having a plan to pay for these services if you ever need them is important to ensure that you or your loved ones are taken care of if it becomes necessary.

In this blog post, I am going to help you understand what long-term care planning all is about, how to plan and pay for it, while also some other considerations I discuss with my clients to help them understand how to have a plan in place, so they feel confident with their decision.

What Is Long-Term Care, and How Do You Plan for It?

When someone is talking about ‘long-term care”, they are referring to a wide range of services that are necessary for people dealing with debilitating health conditions or disabilities that prevent them from doing things anybody else can do (and probably take for granted) like taking a bath, using the bathroom, eating, getting dressed, etc.

While many people believe that this is a type of help you may need when you are older, many younger people need long-term care too. Accidents and diseases such as Lou Gehrig’s Disease or Multiple Sclerosis (MS) can result in people needing long-term care.

When I was in college, I worked as a Personal Care Aide in Fredonia NY, and took care of a 36 woman who required 24-hour assistance due to the effects of MS. She was a wonderful woman who loved stories, movies (which we watched a lot of them together) as well as her 10-year-old daughter who lived with her.

Even though the disease took away her ability to move her arms and legs requiring her to have constant long-term care services, she always had a positive outlook lived life as much as she could.

Though this was part of my life back in 1993, I still saw how having the ability to pay for long-term care helped her and her family maintain their dignity and independence. She even took a one-week cruise out of Miami and the cruise line made her feel like a “VIP” which she cherished immensely.

I understand this is a tough topic to think about but if you or a loved one aren’t able to care for yourselves, no matter what age you are, long-term care service may be needed.

I believe this is important because far too many “experts” on the internet write about how you may be able to wait until you are in your 60’s or even 70’s to start planning for this.

No matter what you age, when I am talking about long-term care planning what I am talking about is making sure that you or your loved one has their needs fully taken care of if they are unable to continue caring for themselves for a long period of time due to a chronic condition.

The process of planning for long-term care involves several factors. The most obvious factor of course is the care itself. However, other factors to plan for long-term care include:

  • Where you live today
  • Where you plan on living
  • Care available where you are if you need it
  • Family dynamics
  • Budget

Because it is easier to see how long-term care planning works with all the other parts of your financial life, I almost always recommend this planning be done as part of a comprehensive process like our Wealth Performance and Protection System. By addressing it this way, it allows you to see how to integrate it with other parts of your financial life so you can make an informed decision as to what you’ll need to save and pay for these services. 

There are several strategies to consider.

In many states, you can have a relative provide care and they can receive payment for doing so. You can transfer assets out of your name and position yourself to have the state pay for your care or you can have some form of insurance that will provide money to pay for long-term care services if you ever need them. This leads me to the next part of this article which is:

How to Pay for Long-Term Care

Creating a “slush fund” of sorts over time may seem like the most logical (and inexpensive way) to pay for long-term care services but this is easier said than done.  

One of the most common ways of planning for long-term care is through the purchase of a long-term care insurance policy. These policies are a form of health insurance so there are some tax strategies that can help you lower the cost of obtaining one. Long-term care insurance is different than what you may think of as “health insurance” because it doesn’t cover expenses like hospital stays or doctors’ visits. Instead, it pays for the care needed to help people do those “activities of daily living.”

When I took care of the woman with MS back in 1993, I helped her eat, drink, go to the bathroom, get dressed…all the things I was taking for granted but she wasn’t able to do.

Today, round-the-clock care like this can cost more than $120,000 a year so without some form of leverage (like through insurance) money can disappear pretty quickly.

Long-term care insurance benefits usually start paying after the insured person is unable to do (2) activities of daily living for 100 days or more.

There are types of long-term care insurance policies that are “hybrid policies” that have other benefits tied to them like death benefits or lifetime income payments regardless of whether you need care or not.

Medicare and Medicaid may also help cover certain costs depending on how long you need care or how much wealth you have in your name.

Another possibility to pay for long-term care is using your home’s equity.

A 90-year-old family friend who I have known my whole life just sold her house and will be using the proceeds to help pay for assisted living. If you are over 62, a reverse mortgage could also be an option to gain access to your home’s equity especially if you need to keep it for your spouse to continue living it (for my friend who sold her house, her husband had passed away several years ago so maintaining control wasn’t a concern for her.)

The fact is there are a lot of possibilities on how to address this type of care.

Other Considerations for Your Long-Term Care Plan

As I mentioned earlier, planning for long-term care along as part of a process that addresses all the aspects of your financial life makes the decision process easier because you can clearly see how your choices will impact your current and future wealth and lifestyle.

As a matter of fact, when you do it this way, you can see the best ways to use tax savings to pay for care, how to position cash flow, and even use several strategies to work together so that you have little if any effect on your current or future lifestyle or wealth.

I am sure that sounds too good to be true but I assure you it isn’t. I even guarantee results.

When planning for long-term care it is also a perfect time to address other estate planning concerns such as wills, trusts, and various advanced directives too.

Here is The Bottom Line On Long-Term Care Planning

“Fail to Plan – Plan to Fail”

Yes, Long-term care planning is not the easiest topic to think about. However, no matter what your age it’s incredibly important that you plan for it before you actually need it.

Failing to do so can have major financial and health-related consequences. You never know the day you will need it (or the day you become uninsurable and lose the options you have today) so being proactive is the smart thing to be.

Imagine the stress on yourself and your loved ones if you do not address this and you need it. Everyone will be scrambling to figure out what to do and by that point, there will not be any good choices available.

The good news is if you are proactive, you may find that there are choices to address long-term care that will not impact your pocketbook or wealth the way you are afraid of. It just requires you to understand the rules of the game and have an expert guide show you what is possible so you can make the best decision for your unique situation.

When you do this, you can live confidently that you have done what you need to do to live the type of life you desire.

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