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Long Term Care Planning Thoughts for the Wealthy

You can read that title and if you’re like most of our clients two things might come to mind very quickly.  First, if I’m wealthy why would I care about long term care planning?  Secondly, I don’t know if I would define myself as wealthy.  Both are reasonable knee jerk reactions to the title but let me expand for a moment to tell you who I’m thinking about. 

As recently as 2013, global per capita income hovered around $14,000 while other statistics at the time point to disposable household income being $5,375 globally.  When we define wealthy we tend to look at our neighbors.  Our neighbors, here in America, are certainly wealthy, globally speaking.  Defining wealthy on a relative scale is difficult and maybe a tad bit dangerous at the extreme but I think it’s safe to say that with $10 or $20 million dollars the first question from above is a valid question.  The second question from above depends on your perspective.  My 92 year old grandfather will usually answer the question of ‘How are you doing?’ with a response of ‘Good, depending upon who you’re comparing me to’.

I’m defining wealthy as someone that one, has assets, and two, would like to keep said assets and/or give said assets to someone else when they’re done using them.  Those assets could be stocks and bonds, real estate, a business, gold bars, or anything else of monetary value.  Long term care expenses can be a roadblock and sometimes a significant roadblock to completing that goal of enjoying the assets you’ve accumulated and then passing them along to someone else when you’re done using them.  Hence, long term care insurance. 

At its foundational level long term care insurance is like any other insurance policy that you buy.  You take a pool of people and you group them together to shift the cost that some of them will certainly run into while others will not.  The challenge is that long term care is an individual event.  It’s not death, which will get us all.  It’s not an automobile where we’re replacing a $40,000 piece of equipment one time.  Pricing it, more specifically pricing it correctly, has been a multiple decade problem.  We certainly have a lot of options in the long-term care insurance space that we can walk you through but what I find myself walking clients through more and more is not actually long term care insurance.  Instead it’s life insurance.

 Here’s my thinking:  I know we’re going to die.  I know you have assets that you want to enjoy while you’re alive and you’ve told me you would like to pass them on to some folks that you love when you’ve graduated to glory.  You have assets.  As of today, the tax code makes some of those assets ‘good’ assets (non-qualified stock and bonds or a family farm that will get a step up in basis at death as examples) and some of those assets ‘bad’ assets (like that overstuffed IRA that is taxable to you and also taxable to you kids and your grandkids and your great grandkids for example).  What if we used your bad assets and spent that bad asset if you needed long term care?  You want to keep your beneficiary whole though, so what could we buy in the meantime that could replace that bad asset?  Life insurance is not long term care insurance, but if you have assets and we have a long term care stay I think it is fair to say that spending bad assets for care and replacing them with a fantastic asset is a plausible scenario for the wealthy.  You would be very surprised at how much 1% or 2% of your IRA per year would buy of this fantastic asset.  I think it’s a reasonable thought process for people that have assets and especially for people that have ‘too much’ in a ‘bad’ asset.  It is worth thinking about and we would be happy to walk you through it in more detail if you’re interested.

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