For most families, long-term care costs present the greatest risk to successfully transitioning a family farm to the next generation.
When discussing long-term care risks, there are many topics to address. These include budgeting income to cover long-term care costs, long-term care insurance, medical assistance programs, and plans for protecting assets. I will address these topics in future columns.
We generally start by reviewing a client’s projected income that is available to pay long-term care costs. We review the client’s projected income from all sources, including Social Security, investments, pensions and rent income. If there is a gap between the available income and the expected expenses, we discuss an alternative plan for making the long-term care payments.
For married clients, it is important to review how the payment of long-term care expenses for one spouse will affect the budget of the other spouse, who continues to live at home. I find that clients underestimate the expenses of the spouse who remains living at home. My advice is to budget so the spouse living at home is able to maintain the standard of living that he or she is accustomed to prior to the spouse entering a long-term care facility. I find that this the most realistic way to ensure the plan will work.
Next, we review whether long-term care insurance is an option to cover the expenses. There are many types of long-term care insurance. I advise my clients to meet with an adviser who is able to explain the various policies and help them find the best option for their needs.
Use LTC insurance even if you can pay
I generally advise clients to consider using long-term care insurance to pay the costs of care even if they are projected to have sufficient income to cover these costs. The use of the insurance allows the client to leverage the cost of care, because the premium payments paid will generally be significantly less than the amount paid out of pocket for long-term care. This will free assets and income for use by the spouse still living at home, and will add flexibility to the plan. In addition, certain long-term care policies can help protect assets if a spouse receives medical assistance.
If these options will not cover the expected cost of care, then we discuss asset protection planning and medical assistance. We will discuss these in more detail over the coming months.
Balzarini is an attorney at law with Miller Legal Strategic Planning Centers P.A. Email your questions and comments to him at [email protected].