Long-term care insurance: The essential element in protecting estate plans

Issue June 2003 By Harley Gordon

Attorneys rarely think of long-term care insurance (LTCI) as an essential estate-planning tool. If considered at all, it is suggested for modest estates to protect the client from the high cost of nursing home care. Attorneys should consider re-evaluating their position of this critical product.

Few would argue that they are going to live a long life. Living a long life creates the near certainty of needing long-term care due to a cognitive or physical disability. Reasonable people will not argue the point. What few understand is that it is not the individual in need of care who should be worried about. His or her needs will be provided for by the family. Rather, the issue is: what will provide that care to his family and finances?

Providing long-term care can make the caregiver sick. It also puts a terrible strain on sibling relationships because the task of helping a parent is rarely shared equally. Long-term care insurance does not replace the need for the care families provide. Rather it builds on that existing infrastructure by providing professional help to handle the physical and time-consuming work needed by chronically sick people. Without it, the family soon becomes exhausted or needs to invade principal to pay for expert care. It is this fact that needs to be considered by attorneys when counseling clients on retirement and tax planning.

Standard retirement planning positions assets and income to pay for post-retirement costs. Tax planning allows tax-qualified investments to be positioned to maximize distribution laws. Neither plan takes into consideration the likelihood that the client or his or her spouse will need long-term care. In other words, what is allocated to pay for the possibility that the client will live a long life? Nothing. And that necessitates either repositioning income to pay for long-term care or invading principal. The former disrupts the retirement plan; the latter jeopardizes it.

Even if a client is able to pay for his care from principal, what is the cost of liquidating tax-deferred assets to pay for the care? Attorneys should consider long-term care a tax and retirement issue, not just paying for nursing home care.

Another thought about self-insuring: An attorney’s best clients are often the wealthiest ones. They understand that life and tax risks can be insured. Long-term care risks are no different; smart people will always spend pennies to protect dollars. They need to be educated about the risk and the direct impact on them and their families. There is no better advocate than an attorney.

It is time to look past the parochial view of LTCI as nursing home insurance to that of an essential product that allows a client’s retirement and tax plan to execute for the purpose for which is was intended — retirement and tax planning, not paying for long-term care.

Harley Gordon is a founding member of the National Academy of Elder Law Attorneys and a founding partner in the Corporation for Long-Term Care Certification, which has created the professional designation for the long-term care industry, “Certified in Long-Term Care (CLTC),” which is endorsed and distributed by the College for Financial Planning.