As a financial planning firm, we understand the importance of preparing for all life's stages, especially the later years. One critical aspect that often goes overlooked is long-term care financial planning. It's about more than just saving; it's about strategically preparing for the financial demands that come with aging. In this post, we'll explain why long-term care planning is essential and how you can effectively prepare for it.

Understanding Long-Term Care

Long-term care refers to a range of services and support needed by people who are unable to perform everyday activities on their own due to chronic illness, disability, or the aging process. It includes assistance with activities like bathing, dressing, and eating, and it can be provided at home, in a community setting, or in a facility.

The Cost of Long-Term Care

One of the most eye-opening aspects of long-term care is its cost. According to recent studies, the average cost of a private room in a nursing home can exceed $100,000 per year, and even home healthcare services can run thousands of dollars monthly. These costs can quickly deplete savings, leaving families financially vulnerable.

Medicare and Medicaid: What Do They Cover?

It's crucial to understand the role of Medicare and Medicaid in long-term care. Medicare, the federal health insurance program for people over 65, does not typically cover long-term care costs. On the other hand, Medicaid, a state and federal program that offers health coverage to eligible low-income individuals, can cover long-term care costs but requires meeting specific financial criteria.

The Role of Estate Planning

Estate planning can play a significant role in long-term care financial planning, particularly through the use of irrevocable trusts. These legal instruments can be pivotal in protecting your assets while addressing the potential need for Medicaid support in the future.

An irrevocable trust, once established and funded, removes the assets from your ownership. This is crucial for Medicaid planning, as Medicaid eligibility is based on the assets you own. There is a five-year look-back period, during which assets transferred out of your name can still impact your eligibility. Therefore, early planning is key.

By transferring assets into an irrevocable trust well before this look-back period, you can protect your estate from being depleted by long-term care costs. This strategic move ensures that your assets are not counted towards Medicaid's asset limit, potentially qualifying you for Medicaid assistance with nursing home costs without exhausting your life savings. It's important to note that these trusts must be properly structured and managed to comply with Medicaid rules and regulations.

Insurance Options for Long-Term Care

Long-term care insurance is a topic that cannot be overlooked, despite its evolving landscape. Long-term care insurance, once a more common component of retirement planning, has become increasingly expensive and less prevalent due to rising care costs. These policies are designed to cover services that aren't typically included in regular health insurance, Medicare, or Medicaid.

When considering long-term care insurance, it's essential to be aware of these dynamics. The cost of premiums has risen significantly, reflecting the increased expenses associated with long-term care. As a result, these policies may not be as accessible as they once were, prompting a need for careful evaluation and strategic planning.

Key factors to consider include your age and health status, as they significantly impact the cost and availability of coverage. Generally, the younger and healthier you are when you apply, the more favorable your premiums will be. However, with the current market trends, even early applicants need to be prepared for potentially high costs.

It's also crucial to scrutinize the benefits each policy offers. With the changing landscape of long-term care insurance, once standard benefits may now be limited or cost extra. Policies vary widely in terms of daily benefits, length of coverage, and what types of care are covered, so a thorough comparison is necessary to find the best fit for your needs.

Given these challenges, long-term care insurance is not a one-size-fits-all solution. It's important to balance the potential benefits of a policy against its costs, keeping in mind the rising expenses in the long-term care sector. In some cases, alternative strategies such as protecting assets using irrevocable trusts, or self-funding through savings and investments might be more viable.

Saving and Investment Strategies

A robust savings and investment plan can provide an additional layer of security. It's important to effectively utilize various investment tools such as retirement accounts, brokerage accounts, pensions, and other financial instruments, with an eye towards long-term care needs. Some retirement accounts may offer a degree of protection in the context of Medicaid eligibility, which can be an important consideration in your overall financial planning for long-term care.

Tax Planning and Long-Term Care

Effective tax planning is a vital component of long-term care financial planning. Here are some tax considerations associated with long-term care planning.

Having Family Discussions

It's vital to have open and honest conversations with family members about long-term care preferences and financial planning. These discussions can help ensure that your care wishes are understood and respected, and they can also provide an opportunity to discuss financial contributions and support from family members.

Legal Documents and Healthcare Directives

Preparing legal documents, such as a durable power of attorney and healthcare directives, is a crucial step. These documents ensure that your preferences for care and financial decisions are followed, even if you're unable to communicate them yourself.

Start Planning Today

Long-term care financial planning is an integral part of a comprehensive financial strategy. It requires thoughtful consideration and proactive planning. As financial planners, we are here to guide you through this process, ensuring that you and your loved ones are well-prepared for the future. Remember, the best time to plan for long-term care is before you need it.

If you haven't started planning for long-term care, now is the time to begin. Contact us to schedule a consultation. Together, we can develop a long-term care financial plan that meets your unique needs and provides peace of mind for the future.

Bill Canty, CFP®, CPA, Financial Planner

Ed Canty, CFP®, Financial Planner

Joe Canty, CFP®, Financial Planner

Tina Alteri, CPA, Tax Advisor

Maureen Walsh, EA, Tax Advisor

This is a question we are asked frequently by clients. How much life insurance is enough will vary greatly depending upon your situation. We will discuss some of the factors that you should consider in making this decision. 

What Financial Obligations Do You Need to Cover? 

The first thing to keep in mind is that the main purpose of life insurance is to replace income or build assets in the event of your death. 

The best way to estimate how much life insurance you need is to take an inventory of the financial obligations that you would like to be able to cover in the event of your death. These will vary based on your unique situation, but here are some common examples we see in working with our clients: 

These are just some examples of the types of obligations you may want to cover via a life insurance death benefit for your beneficiaries. 

Consider All of Your Assets 

Part of the calculation of how much life insurance you may need is taking your other assets that could be passed on to your heirs upon your death into consideration. Everyone’s situation is a bit different, but some examples could include: 

These and other assets can be used to fund the needs of your family or other heirs. These assets should be taken into account in your estate planning process and in deciding how much is needed in terms of a life insurance death benefit to meet their needs. 

Other Factors to Consider 

Whether you need life insurance and how much coverage will depend on a number of other factors.  Among these are: 

Age. We find that younger clients generally need a larger death benefit, especially if they are married and have children. They typically have not accumulated enough assets elsewhere to provide for their family in the event of their untimely death. 

On the other side of the coin, clients in their 60s or older may not need any life insurance or may need a lower death benefit. Their kids are generally grown and they have accumulated other assets to pass on to their heirs and beneficiaries. 

A key question is do you have beneficiaries who will need financial support upon your death? If you are single with no dependents the answer may be no. Likewise, if you are financially independent and have sufficient assets to leave to your spouse and other heirs. 

One nice benefit of life insurance is that the death benefit passes to your beneficiaries tax-free. The tax-free nature of the death benefit will be appreciated by your beneficiaries.

Depending upon the nature of your other assets, a life insurance death benefit can be a good addition to your estate. 

What Type of Life Insurance Policy is Best? 

While there is no single right answer here, we generally recommend that our clients strongly consider term life insurance. We like term insurance as the premiums are generally cheaper and there are generally no hidden costs as is sometimes the case with permanent life policies. You are only paying for a death benefit and not some underlying investment option that may or may not be a good deal for you.  

The other reason we typically recommend term life is that we find that many clients don’t need the death benefit as part of their estate planning as they move into retirement. Most have built up enough assets including investments, real estate, and in some cases their interest in a business where they are now considered "self-insured" and can live off of their accumulated assets instead of needing a large payout from life insurance.

For help in deciding on the amount of life insurance coverage that you need please feel free to reach out. We can help you incorporate life insurance into your financial and estate planning. 

Bill Canty, CFP®, CPA

Ed Canty, CFP®, Investment Advisor

Joe Canty, Investment Advisor

Maureen Walsh, EA, Tax Advisor

Tina Alteri, CPA, Tax Advisor

Estate planning is the process of ensuring that your assets are properly distributed to your heirs upon your death and designating who will handle your affairs should you become incapacitated. Estate planning is important for all of us, not just the ultra-wealthy. Here are some estate planning basics to consider. 

Take inventory of your assets 

The first step in the process is to take inventory of what you own. This includes everything from bank accounts to your home to investment and retirement accounts. It also includes non-financial assets such as art, collectibles and an array of other things. For business owners, this often represents a major component of their wealth. 

Part of this process is to determine who should receive these various assets in the event of your death. If you are married, in many cases this will be your spouse. There may be assets that you would like to go to other heirs as well. 

Another important part of this process is to review how each of these assets will pass to your heirs. This may include beneficiary designations, joint ownership or another method. It’s important to be sure that things are set up for each type of asset to correctly go to the people you desire. 

What would happen if you died today? 

One of the things we do with many of our clients is an “estate planning fire drill.” In other words, we help them look at what would happen to their various assets were they to die now. In some cases the results are eye-opening and not consistent with our client’s wishes. This is a good motivator to update their estate planning to reflect their current desires.

Having a Will 

A will is the core estate planning document for most people. A will is a legal document that spells out your wishes for the distribution of your assets and property upon your death. It can also spell out your wishes regarding the care of any minor children. If you die with a will your estate may still be subject to probate, which can be an expensive and time consuming process. Assets that pass outside of a will do not have to go through the probate process.

In the case of minor children, if you don’t designate a guardian, the court might do it for you and they may end up with someone who you would not have approved of. 

Beneficiary designations 

Some assets are passed to heirs via beneficiary designation, these override anything that might be contained in a will regarding these items. Beneficiary designations are often referred to as will substitutes. Retirement accounts such as IRAs and 401(k)s, the death benefit on a life insurance policy and annuities are prominent examples of assets where proper and up-to-date beneficiary designations are required. 

As an example, if you are divorced and remarried and your intent is for the death benefit on your life insurance policy to go to your current spouse, you will need to change the beneficiary designation to reflect this. 

Besides a primary beneficiary, don’t ignore secondary beneficiaries. These designations determine who receives the account or death benefit in the event the primary beneficiary were to die prior to your death. 

Ownership 

The ownership of some types of assets is important for estate planning purposes. A house that is jointly owned with your spouse or another family member will generally avoid probate. Likewise with investment and bank accounts that are properly titled. 

Life insurance 

Life insurance can be a key component in the estate planning process. Life insurance can be used to build an estate and to ensure that your heirs receive the amount of the death benefit. Life insurance can be useful in funding a buy-sell arrangement for business owners. 

Life insurance death benefits pass directly to the policy beneficiaries and are not subject to probate. Life insurance can be used to pay estate taxes that might be due either at the federal or state level. Life insurance can also be used to equalize the inheritance levels among various heirs. If certain assets are left to particular heirs, the life insurance benefit can be used to equalize the amount of the inheritance among your other heirs. 

Trusts 

There are various types of trusts available and the right type of trust can be useful in estate planning. 

One commonly used trust is a living trust. Under this arrangement, the trust is created, and your assets are retitled to the living trust. This might include investment accounts, bank accounts, real estate and other assets. The assets in the trust are used for your benefit while you are alive. Upon your death, the assets pass to the beneficiaries of the trust. Some benefits of a living trust include: 

There are numerous trusts that can be used to handle various estate planning situations. We generally work with our clients to help determine if a particular type of trust is warranted and then work with their estate planning attorney to get the trust established and funded. 

Living will 

A living will is a document that is sometimes referred to as an advance healthcare directive. It provides direction regarding your wishes as to certain healthcare decisions if you are unable to provide direction yourself. It will spell out things such as whether or not you want doctors to take extraordinary measures to keep you alive under certain conditions. 

A healthcare power of attorney is another type of advanced directive that designates someone to make these decisions on your behalf if you are unable to do so. 

Having an appropriate advanced directive for your healthcare in place can save your family a lot of grief and can help preserve your estate based on your wishes. 

Summary 

You’ve worked hard to accumulate assets and to build an estate. You want your assets to go to the people or organizations that you choose. Proper estate planning can help ensure that the heirs of your choosing benefit from your hard work and success upon your death.

If you are looking for a fee-only fiduciary financial advisor who will always put your interests first, please give us a call to discuss your estate planning or any other financial issues. We are here to help.

Please call us at 518-885-3230 or 239-435-0090 or email [email protected] to let us know if you have questions. 

Bill Canty, CFP®, CPA

Ed Canty, CFP®

Maureen Walsh, EA, Investment Advisor Rep.

Joe Canty, Investment Advisor Rep.

Tina Alteri, CPA, Tax Advisor

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Ballston Spa, NY, 12020
518-885-3230

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Naples, FL, 34103
239-435-0090
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