Hecht Insurance Advisors, LLC Blog
Why LTC Planning Is Essential for Boomers
The hefty price tag
If you or a loved one suffers from an illness that requires long-term care, get ready for some sticker shock. A year-long stay in a nursing home typically can cost between $40,000 and $80,000, often more. While prices vary by state and the type of care required, one thing is consistent across the board when it comes to long-term care: it's phenomenally expensive.
Just take a look at the average costs of various types of long-term care in the U.S.:
As you can see, these costs can quickly add up and eat away at your nest egg. For example, let's say you hire a home aide to assist your husband just three times a week for four hours. At $19 an hour on average, that would come out at $228 a week. That adds up to nearly $12,000 a year. Unfortunately, Medicare does not cover these exorbitant long-term care expenses.
To top it off, informal home care is simply not a realistic option for most families these days. After all, most children of baby boomers are struggling to balance their own work and family life. They simply don't have the time or resources to care for sick parents.
This is why it's critical for each and every family to plan ahead for a potentially expensive long-term care event. Without the proper protection, such an event could devastate a family's finances.
The simple solution: LTC insurance
How can boomers handle the skyrocketing costs of a potential long-term care event? The answer is simple: long-term care insurance. Without LTC coverage, a nursing home stay or another long-term care event could destroy your family's finances.
Because LTC insurance covers many of these expenses, this valuable coverage will not only protect your finances it will also help you to maintain your current standard of living if you or your spouse requires long-term care.
Without LTC insurance, the cost of a nursing home stay or a home health care aide could wreak havoc on your finances and whittle away at that nest egg you've worked so hard to build. Don't burden your loved ones with this kind of emotional and financial strain. Create a long-term care plan today to save your family a lot of heartache and stress tomorrow.
If you want to discuss your long-term care insurance options, call us. A professional can evaluate your unique situation and help you customize an effective plan.
Second-to-Die Life Insurance: Ideal for Estate Tax Planning and More
This can be important when a family's wealth is tied up in illiquid assets that are difficult to sell. With a second-to-die life policy in place, the family or estate executors receive the tax-free cash death benefit right away, and can use that to pay estate taxes, rather than be forced to sell off assets like small businesses and real estate to raise the cash.
Otherwise, heirs may be forced to sell assets in the estate at heavily discounted prices, or at a very poor time in the market to sell, to meet the estate tax deadline.
Second-to-die policies also typically have lower premiums for a given death benefit than standard single-insured life insurance policies.
Use of trusts to move life insurance out of the taxable estate
Who owns the insurance policy itself? It may be prudent to set up an irrevocable trust, and have the trust own the life policy, rather than own it directly in your own name.
Otherwise, the life insurance policy would be considered part of the taxable estate, which would increase your tax bill. Setting up a properly constructed irrevocable trust will help you avoid this problem.
To set up the trust, speak with a qualified attorney and your tax advisor. Only a licensed attorney can write the documents required to set up the trust and ensure that it meets the requirements necessary for the assets in the trust to be considered separate from the taxable estate of the deceased.
Once the trust is established, the trust can then become the owner of the life insurance policy.
But, the applications of the second-to-die life insurance policy don't stop there. Even if you don't expect your estate to be big enough to be subject to federal estate tax, there are a number of other uses for this type of life insurance:
There are other specialized applications where second-to-die life insurance works extremely well as a planning tool. To see if this type of policy would benefit your family, call us at 540-712-2199, schedule an appointment, or video chat.
The specter of having a severe illness or injury that requires long-term care is a scary proposition for most anybody, not to mention the financial obligations you would face.
But trying to time when is the best age to purchase a policy is not an easy decision. Obviously, you don't want to buy the policy too early and unnecessarily spend thousands of dollars on premium over your life for coverage you may not need until you are much older.
The younger you are when you buy a policy, the lower your premiums. That said, people typically do not purchase long-term care policies in their 30s or 40s since they are looking at a long time-horizon for when they would need to file a claim. After all, the policy may not be needed for 30 years or more.
At the same time, if you wait until you are in your late 60s or early 70s, the premiums may be cost-prohibitive for you - not to mention you may have trouble finding an insurer willing to write your policy.
For example, based on the "Genworth 2019 Cost of Care Survey," if purchased today, a long-term care policy with a maximum daily benefit of $150 a day for three years would cost an estimated:
As you can see, the ideal time cost-wise is probably in your 50s and 60s.
But before pulling the trigger, you should think about how the premiums fit into your life and other obligations. If you have children who have not yet graduated from college, they will be your major concern. You should carry enough life insurance to see them through.
But after your children, if any, are on their own, you might take the funds you were using to pay for life insurance premiums and use them to finance long-term care insurance premiums instead.
What policies cover
Long-term care insurance covers:
When shopping for a policy, you will have many choices to make:
The trigger - Policies will have a trigger for when payments can commence. Often, policies base qualification on cognitive impairment or the need for assistance in at least two activities of daily living (dressing, toileting, eating, transferring, bathing and continence).
Inflation riders - As you know, health care inflation is never-ending. While $150 may be sufficient to cover your cost of care today, that may not be the case in a decade or 20 years from now.
With long-term care insurance, you often have the option to buy an inflation rider with the policy, which will increase the allowance for daily benefits by a certain percentage a year, like 5% on a flat or compound basis.
But, you need to know that this type of rider comes with a price in increasing premiums. Some experts recommend that buyers aged under 70 purchase an inflation rider, while anybody older than 70 does not need to do so.
Elimination period - The elimination period is the time the insured must wait before the policy starts paying out. During that period of waiting, you will be on the hook for long-term care expenses. Typically, the waiting period is anywhere from one to 90 days, but it could be even longer.
The longer the elimination period, the lower the premium. That said, the premium savings you achieve by choosing a longer elimination period may not be worth it for you.
Don't fall into the disclosure trap
One thing you have to be very careful about when applying for long-term care insurance is full disclosure about your pre-existing conditions or prior illnesses.
If you fail to tell the insurer about an illness, the company may refuse you coverage at the time you file for benefits. It's in your best interest to be upfront about your health, as you would rather be denied during the application process than have your claim denied after paying your premiums for years.
There are other options available:
There are life and annuity products with long-term care options available depending on your health, age, and resources that can work well too.
Ready find solutions to your long-term care needs?
Getting All the Facts for Your Estate Planning
The threshold for lifetime gift and estate tax increased - In 2020, the amount has risen to $11.58 million for individuals; it is $22.8 million for couples. This is the maximum amount of gifting via money or asset transfer allowed during a person's lifetime without tax consequences. The limit more than doubled in 2019 after tax legislation was signed into law by President Trump.
The annual gift exclusion amount is $15,000 - The annual federal gift tax exclusion allows you to give away up to $15,000 ($30,000 for couples) in 2019 to as many people as you wish, without those gifts counting against your $11.58 million lifetime exemption.
Some types of gifts are not subject to this limit. For example, gifts to a spouse, a medical fund or an education fund are not included. Also, education and medical gifts are not taxable. When making medical or education gifts, transfer the funds directly to the institution rather than sending them to an individual recipient.
Lifetime exclusion amount portability is still an option - Estate tax laws started allowing surviving spouses to use remaining lifetime exclusion amounts of their deceased spouses in 2011. In addition to simplifying estate planning, this gave couples a way to access exclusion amounts.
Couples can transfer up to $22.8 million of their taxable property to their heirs without estate tax penalties. However, transfers must be made by election in the estate.
The gift and estate tax effective rate is 40% - If your estate is under $11.8 million, congratulations: The federal estate tax will not apply to your estate. Any amounts over that threshold will be taxed at marginal tax rates that cap out at 40% for an estate worth more than $1 million over the cap.
Remember state gift tax laws - While the rules covered in the previous sections apply to federal laws, they do not apply to state laws. Many states have laws that require estate and gift taxes. If the taxes include lifetime exclusion limits, they will be lower than the federal limits.
To learn about individual state laws, discuss concerns with an agent. It is not possible to avoid these taxes in the states where they are required.
While estate planning is not something most people think about often, it should be considered every year - and when any major life changes happen.
A new addition to a family, a marriage, a death in the family, getting a major promotion and big health changes are just a few examples of times when estate plans should be reviewed and changed as necessary.
Neglecting these changes can cost a person's heirs a considerable amount of time and money. Stay on top of these issues to keep plans running smoothly.
Call us 540-712-2199 to learn more about optimizing estate planning.