Page 22 - BusinessWest 2022 Senior Planning Guide

Long-term Care Insurance
Choose the Right Option for Your Needs and Circumstances
IBy Kim Painter for AARP
t’s a fact of life: someday you may need long-term care. That means you may need help at home with basic daily activities such as bathing, dressing, and
eating; community services like adult day care and transportation; or ongoing care in a nursing home, assisted-living residence, or other facility.
One option to pay for such services is long-term care (LTC) insurance. But before you sign up for a policy, there’s a lot to learn. The market has changed greatly in recent years. Here’s what you need to know.
Why Plan for Long-term Care?
About 70% of Americans who reach age 65 will need some long-term care during their remaining years, according to a study from the Urban Institute and
the U.S. Department of Health and Human Services. Although some people will get by with unpaid care from family members and others, nearly half will need some paid assistance. About 24% will need more than two years of paid care, and 15% will spend two-plus years in a nursing home.
The costs of care are highly variable, depending on how long you require it, where you live, and how intense your needs are. The ways to pay for services vary, too.
Traditional Medicare, the public-health insurance program for people over 65, does not cover long- term care beyond some skilled care right after hospitalization for an injury or illness. Some Medicare Advantage plans, from private insurers, offer supplemental coverage for services like meal delivery and rides to medical appointments, but it is limited. Veterans may access long-term care through the U.S. Department of Veterans Affairs.
But the largest single funding source is Medicaid, the joint federal and state program that covers low-income Americans. Although income limits vary by state, you typically can’t get Medicaid unless you exhaust most
of your savings and other assets beyond your primary home and vehicle.
That prospect leads many people to think about how
Giving
Continued from page 41
generosity will one day make an impact on a charity you love. With a charitable gift annuity, the charity pays you a fixed income for life in exchange for a gift of cash or appreciated stock (generally starting at $10,000). You receive an immediate tax deduction for a significant portion of your gift. Currently, gift-annuity rates are more favorable than those for CDs and many fixed-income investments. You and/or a loved one can count on always receiving the same, stable level of payments from a charitable gift annuity, regardless of market fluctuations.
4. Avoid capital gains taxes.
Appreciated marketable stock can be smart asset
to give. For example, Dana owns 1,000 shares of stock that he purchased for $1,000 back in 1980. Today, that stock is worth $25,000. If he sells the stock, he will owe capital-gains tax of $3,600 on the appreciated value
of $24,000 (15% x $24,000). If he donates the stock to charity, he avoids that $3,600 tax, making the actual
they can plan for long-term care expenses in a way that protects their retirement savings and lets them get the kind of care they want. And that’s where long- term care insurance comes in, though it’s not the only solution.
Traditional Long-term Care
Insurance
Traditional long-term care policies work much
like policies for auto or home insurance: you pay premiums, usually for as long as the policy is in effect, and make claims if you ever need the covered services.
You can choose a little coverage or a lot to help pay for services in or out of your home. Typical policies spell out how much you can receive daily or monthly, up to a lifetime maximum or a certain number of years. Different amounts may be allowed for care in your home, a nursing home, or elsewhere. You pay extra for benefits that rise over the years to protect you from inflation.
You also can choose from policies with varying waiting periods between the time you start needing care and when benefits kick in. A typical waiting period is 90 days, but you can pay more to get benefits after 30 days or pay less to accept a 180-day delay. Likewise,
you pay more for a policy that pays out $200 a day, lasts five years, and grows benefits at a compounded 3% per year than you would for one that pays $100 a day for two years with no inflation protection.
What LTC Insurance Covers
Policies may limit what conditions they cover. For example, it’s not unusual to deny care for alcoholism, drug addiction, or war injuries. And while a pre-existing condition, such as heart disease or a past cancer diagnosis, may not stop you from getting a policy, the policy may not cover care related to that condition for some period after it goes into effect.
Generally, though, you become eligible for benefits once you can no longer perform a set number of the so-called activities of daily living — such as bathing, dressing, eating, using the toilet, getting in and out
of beds and chairs, and managing incontinence — or become cognitively impaired. At that point, premiums are typically waived while you receive benefits.
But if you stop paying the premiums before the need arises, you usually lose the coverage. And if you never use the coverage, the insurance company keeps and invests your money to pay for other people’s claims and reaps a profit.
Hybrid Policies
The majority of long-term care policies sold today combine coverage for long-term care with another benefit, usually life insurance or, less often, an annuity. These are known as hybrid or linked-benefit policies.
Most of the life-insurance hybrids work like this: you pay one lump sum or a fixed amount broken into several annual payments. In return, you get long- term care coverage with features like those found in traditional policies, along with some amount of life insurance that will go to your heirs if you never use the long-term care benefits. The life-insurance payout is reduced or eliminated if you do use long-term care benefits. The policy may also allow you to take back your full payment within the first few years if you decide you no longer want the coverage. Premiums usually aren’t ongoing, so they can’t rise. n
5. Save your heirs a hefty tax bill.
If a large part of your wealth is tied up in retirement assets, you may consider those assets as a tax-wise way to make a charitable gift. This is because your typical retirement assets are taxed when they are distributed. Consequently, any distributions will be taxed at the income-tax rate of the person receiving them, which can be as high as 37% plus any state income tax, plus any estate tax. In addition, for most non-spouses, those distributions must take place within 10 years, potentially pushing your beneficiaries into higher income-tax brackets and thus a higher tax bill.
You can direct retirement assets to charity through a beneficiary designation. If you are interested in turning those assets into a stream of income for heirs, you can even establish a testamentary trust or charitable-gift annuity in your estate plan.
Giving
Continued on page 52
“About 70% of Americans who reach age 65 will need some long-term care during their remaining years, according to a study from the Urban Institute and the U.S. Department of Health and Human Services. “
“You can direct retirement assets to charity through a beneficiary designation. If
you are interested in turning those assets into a stream of income for heirs, you can even establish a testamentary trust or charitable-gift annuity in your estate plan.”
cost of his charitable gift only $21,400 (value minus capital-gains tax). The charity receives the full $25,000, and he receives a tax deduction for that full fair-market amount. Plus, he makes a meaningful difference.
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SENIOR PLANNING GUIDE
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