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Will End-of-Life Expenses Eat Up Your Estate?

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Will End-of-Life Expenses Eat Up Your Estate?
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For aging baby boomers, long-term care and home health care are huge concerns, and these concerns form the last part in a series of articles covering what I call the "six circles of wealth." These six circles break down your personal finance and wealth creation efforts. The goal is to have all of the circles spin at the same time, creating synergy and powerful momentum for your money.

Very few of my clients have all the circles covered, which means your wealth will take longer to grow and be open to much more risk than is necessary. So far, I have covered the first four: income and cash flow, investments, guaranteed income and cash and liquidity. This article discusses the last two: long-term care and your estate.

The only circle that can cannibalize the others is long-term care. It is also the circle that is most neglected, and most people's plan for dealing with it is hope and prayer. Most people say "I won't get that bad where I need a facility or a nurse to come in and help me" or "my family will help me with all of my needs" and even "if I get that bad, just pull the plug or shoot me and put me out of my misery." Do any of these sound familiar?

Long-term care facilities average $7,200 a month, and according to Genworth Financial, costs are increasing more than 4 percent a year. How long could your nest egg last paying out more than $80,000 per year in today's dollars? Many people might consider buying a long-term care insurance policy. The American Association of Long-Term Care Insurance says a policy for a 55-year-old costs $723 to $1,590 a year, depending upon benefits -- and these figures are from 2009. As with most insurance, if you never need it, your family will not get your premiums back after you pass away.

Asset Reduction Via Estate Planning

One alternative is estate planning, which needs to be done with a quality legal firm that specializes in estate planning and elder law. There are ways to structure your estate that will lessen any blow that you might incur from the cost of long-term care. These usually involve getting rid of assets via gifts and trusts -- years before you need long-term care -- so when you have to sell off assets before Medicare kicks in its contribution for long-term care, you don't have many assets left to sell.

This type of planning is controversial because it is seen as pushing the tab on the government even if you have the ability to pay for yourself. So unless you were smart enough to have a quality life insurance product that you bought many years ago, you could be leave nothing behind for your family. Since the traditional financial world tells us to buy term insurance and not whole life, most people will stop paying for expensive term policies as they age because the cost becomes prohibitive. Thus when they are faced with long-term care issues, they must cannibalize their estate or reduce the estate before they have need long-term care. My job isn't to pass judgment but to pass along the information and let your conscience be your guide.

Asset-Based Long-Term Care

Another alternative is to allocate some of your funds into products that are built to help you with the cost of long-term care. Asset-based long-term care might be as simple as putting some of your money inside of a properly structured annuity. Let's say you spend $150,000 on a long-term care annuity where you were credited with a 3-1 benefit ratio. Your $150,000 buys you $450,000 of long-term care protection if and when you need the coverage.

What if you never need the coverage and pass away at home in your bed? Then the $150,000 in that account will be part of your estate and given to your family, plus a small rate of growth. Maybe only 3 percent growth, but remember you are not doing this for growth. You have other circles of wealth that are concerned with growth and returns. This is a long-term care and estate planning strategy. You sleep well at night and maintain control of your cash, and if you never need the benefit, your family receives the money plus growth.

Whole Life Insurance

Many of our clients in their 40s, 50s and even into their 60s also set up a high-quality whole life insurance policy. This provides the estate guarantee they want for their kids and grandkids so if they need to sell off assets to pay for care, they still leave behind their legacy for their family.

One of my favorite books is by Harvey Mackay is called "Dig Your Well Before You're Thirsty." These words are even truer when dealing with long term care and your legacy.

John Jamieson is the best-selling author of "The Perpetual Wealth System." Check out his new Video of the Week.


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24 Comments

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Samantha Wright

There's no doubt that the high cost of care can eat up your estate if you don't have enough retirement income or private insurance. Some would say that their nest egg are enough to pay for their end-of-life-expenses or they have families to take care of them once they will require long term care. It comes with a hefty price tag like around $81,000 for a semi-private room in a nursing home annually. However, if you purchase long-term care insurance it will only cost you about $1,000 to $,8000 annually. With the help of resources such as http://www.ltcoptions.com/long-term-care-insurance-costs/, http://www.aaltci.org/long-term-care-insurance-rates/ and http://longtermcare.gov/costs-how-to-pay/what-is-long-term-care-insurance/long-term-care-insurance-costs/ can help you determine the real cost of long term care insurance. These can help you protect your assets and as well as your family once the time comes that you'll need any form of long-term care.

May 07 2014 at 12:21 AM Report abuse rate up rate down Reply
rongesq

The Federal LTCi plan was called the CLASS Act (Community Living Assistance Services and Support). It would have provided approximately $75 dollars a day for care after a FIVE YEAR elimination period. It was abandoned in late 2011 because despite the promises made by the PPACA, even they could justify the expense that providing even minimum LTC would cost taxpayers. Oh, and Medicare doesn't pay for LTC.

May 06 2014 at 10:57 AM Report abuse rate up rate down Reply
1 reply to rongesq's comment
clark8642

Medicaid pays for long term care for those who meet the income and asset tests, much of which is discussed in this article, for example giving away your assets in order to qualify for Medicaid. Over half of Medicaid payments go to individuals in nursing homes who are also receiving Social Security and Medicare.

May 06 2014 at 4:07 PM Report abuse rate up rate down Reply
nikkitytom

I'll pull the plug. I think the artificial "extension of life" is obscene. Our culture so fears death that people in America go to any extreme to avoid it. I'm not buying into this. My cat had a better death than I could hope for ... in my arms with an excellent vet's very efficient shot. Animals get better deaths. And make no mistake ... it's noy compassion which drives the medical extrablishment to support ridiculous life extension methods. it's MONEY. They'll not get mine.

And what kind of magical "annuity" kindly gives your investment back to your estate if you die peacefully at home. With a small rate of growth cited too. Not the ones I was shown.

May 06 2014 at 6:38 AM Report abuse rate up rate down Reply
1 reply to nikkitytom's comment
rongesq

Most annuities sold by reputable companies return the principal, plus gains if not yet annuitized, to the family of the annuitant. If the annuity has begun paying out, then whatever the balance in the annuity will be passed as a death benefit. What you are talking about is an immediate "life-only" annuity which only pays while you are alive. Many annuities will also provide for LTCi payments or can be used to fund an LTC insurance policy.

May 06 2014 at 11:02 AM Report abuse rate up rate down Reply
Carolyn

My spouse & I have bought Long Term Care 'about' 15 years ago (1999). It first began with - $97 per month to today's (2014) cost of - $245 per month for myself & my spouse's is similiar in cost. We just have a different company from each other due to retirement requirements.

Pray tell, where in the world is this - $723 to $1,590 yearly cost - ?? (according to the reference in the article - American Association of Long Term Care Insurance)

Back to our own policies. . . . . . . .

We've now heard, through our own Long Term Care companies, that due to the fact that we purchased our policies so long ago, we cannot add 'Home Care' coverage to our policy as it is now set in stone. These Long Term Care companies did not have in-home care coverage at the time when we took out our policies. We would think that this would be ideal as it is so much cheaper keeping the elderly in the home rather than in a home away from home.

Got any tips, anyone - ?

May 05 2014 at 7:31 PM Report abuse +1 rate up rate down Reply
1 reply to Carolyn's comment
doren104

I understood it to mean the average POLICY for a 55 yr old is $723 to $1,590 per year as of 2009. I clicked on the link and that confirmed his statement. I would believe it would be higher now since that was 5 yrs ago.
Look into an asset based policy. For example an annuity that pays more if you have to use it for home health care specifically could be your best bet as a new LTC policy would be even more expensive than what you are paying now.

May 06 2014 at 11:29 AM Report abuse rate up rate down Reply
thefacts22

There are "Plenty" of people that do not have to worry,the welfare people do not pay a dime for nothing

May 05 2014 at 7:04 PM Report abuse rate up rate down Reply
alfredschrader

I'd say I've gotten at least 200 scam emails out of Nigeria over the last 10 years.
I wouldn't trust any information coming out of Nigeria nor would I involve the FBI.
If it's from Nigeria, it's probably a scam.

May 05 2014 at 5:30 PM Report abuse +3 rate up rate down Reply
1 reply to alfredschrader's comment
merstockgto

I get these scam emails all of the time too. Getting really old and they are so ridiculous. I used to work for a bank and we were always warned about Nigeria and how it is a hotbed for scams. I guess these idiots in Nigeria have not got the word that most of us are onto them.

May 06 2014 at 1:35 AM Report abuse +2 rate up rate down Reply
Jamie

that's why i smoke and drink, hopefully to avoid nursing homes.

May 05 2014 at 5:13 PM Report abuse +5 rate up rate down Reply
1 reply to Jamie's comment
merstockgto

Yeah, you won't need a nursing home, just some tubes up your nostrils and an oxygen tank next to your bed.

May 06 2014 at 1:37 AM Report abuse +1 rate up rate down Reply
gramargo

If you have a decent life insurance policy, you can take a cash payment (not as much as the "death" payment, of course, but fairly good sized) if you need it for support toward the end of your life. It should be considered in your planning.

May 05 2014 at 3:37 PM Report abuse rate up rate down Reply
crimeslawyer

Stay away from fee based estate planners. They are nothing but insurance men pretending to help you with their large fees.

May 05 2014 at 1:51 PM Report abuse +6 rate up rate down Reply
ronji5464

Before end of life expenses eat up an estate the assets are consumed by a corrupt probate judge and his appointed criminal administrators who play ATTORNEY LOTTO with the proceeds and the beneficiary sees zip and they do it with impunity. The elderly and the deceased are helpless victims and not one elected official will address it.

May 05 2014 at 1:21 PM Report abuse +4 rate up rate down Reply
1 reply to ronji5464's comment
crimeslawyer

That is why you get a trust to avoid probate.

May 05 2014 at 1:52 PM Report abuse +2 rate up rate down Reply
2 replies to crimeslawyer's comment
MR NUSSBAUM

OR PUT THE MONEY IN AS POD. SAME AS A TRUST.

May 05 2014 at 5:05 PM Report abuse rate up rate down
thefacts22

Transfer all your property to your family

May 05 2014 at 7:06 PM Report abuse +1 rate up rate down