LONG-TERM CARE PLANNING 101:

Insulating Yourself From

A Long-Term Care Crisis

Introduction

The reality is, there are consequences to living a long life. Your family’s financial, emotional and physical well-being will be severely altered should you become frail and need care. Nothing will pay for the plan of care other than your retirement portfolio or savings, which were never allocated to do so. Being proactive, no matter your financial situation, is key to minimizing any collateral damage that would occur by not having a plan.

The Facts

• If you are 65 or older, you have a 70% chance of requiring some type of long term care.

• The 55-65 population accounts for the fastest growing segment of newly diagnosed Alzheimer’s patients in the U.S.

• The average cost of home health care in Ohio is $20/hour. An assisted living facility, on average, costs $45,000 per year and a private room in a nursing home currently averages $79,000 per year in Ohio. Nationally, costs range from a high of $232,000 in Alaska to $56,000 in Louisiana.

• Longevity has been increasing - this means we are living longer (and has nothing to do with our quality of life!)

The Financial Cost of Care

• In 2012, the average cost of care in a Nursing Home was $79,000 (for those that received care in their homes, around the clock care averaged $12,000/month). Using a 3.5% medical inflation rate, in 10 years, the cost of care will have grown to $111,000/year and in 20 years it will have grown to $157,000/year.

Men

Avg. Length of Care=2.2 years

Cost in 10 years

$245,000

Cost in 20 years

$345,000

Women

Avg. Length of Care=3.7 years

Cost in 10 years

$410,000

Cost in 20 years

$580,000

• Average length of care: 8 years

• In 20 years, the total cost will be $1.25 million.

• Alzheimer’s Disease does not discriminate

• between the sexes!

Alzheimer’s Disease

TWO SIMPLE QUESTIONS YOU NEED TO ASK YOURSELF…

First, “You may never need care, but, what if you did? How would that affect your family?”

Spouses – Many times caring for the chronically ill loved one can make the caregiver chronically ill as well.

Children – When a spouse isn’t involved, other loved ones carry the burden. Often, the eldest daughter quits her job, moves in with her parents (or moves her parents to her home) and gives up her career – as any child would probably feel obligated to do.

Family dynamics – When informal care is needed, it may not be shared equally amongst the adult children. Often one sibling bears the burden and it can affect the relationship with the others.

Unnecessary losses – You can never avoid all losses; however, the unnecessary spiritual, emotional, financial and familial losses could be mitigated when you are prepared.

Second, “And if you do need care, how will you pay for it?”

YOU HAVE ONLY THREE CHOICES WHEN IT COMES TO PAYING FOR CARE:

Government

(Medicaid) Your Pockets

(Your Assets)

Long Term Care

Insurance

Traditional

Asset Based

Option #1: Government (Medicaid)

Eligibility restrictions:

• Spend Down Rules ($1,500)

• Look Back Period (60 Months)

• Period of Restricted Coverage

• Limited Home Health Care Benefits (PASSPORT Program)

You MUST plan ahead in order to qualify for Medicaid!

What is Medicaid and What Does it Cover

• Medicaid is a federal, state and locally funded program and varies from state to state. Medicaid provides benefits for those needing long-term custodial care, who are permanently ill, injured or disabled, and financially eligible.

• Medicaid will assist people with nursing home care (including custodial care) that are having difficulties with the "activities of daily living," such as bathing, dressing, feeding and going to the bathroom, as well as those who need skilled nursing care. There is no maximum limit on the period of time that care can be provided. Once qualified, the cost of a Medicaid-approved nursing facility would be covered. However, whatever income one receives would automatically go first to cover the cost of the nursing home.

Option #2: Self-Funding for Long-Term Care

(Paying dollar for dollar for care!)

• Home/Real Estate/Property - Who knows what the value will be when you need it. Will you have to sell and settle?

• Retirement Assets - Already allocated for retirement income?

• Investment Assets - Are they guaranteed to continue to grow and outpace inflation? Taxation issues?

• Income - Already allocated for daily living expenses?

Long-term care can not only threaten your assets but also your income!

Option #3: Traditional Long Term Care Insurance -

“A Use It Or Lose It Proposition”

Long Term Care Insurance seems to be a logical solution, yet only 5-6% of adults have coverage. Why so few?

1. Traditional Long Term Care Insurance is expensive. A couple, both 60, could spend $6,000 a year in premium for a 5 year, $5,000 a month LTC benefit with a 90 day waiting period. Add on a 5% inflation rider and the premium is over $10,000!

2. Existing LTC plans have recently experienced significant rate increases as these premiums are not guaranteed. John Hancock recently raised their premiums in some states as high as 90%!

3. Between 2004 and 2009, new LTC insurance policy sales have declined by 51%.

The New Asset Based Care Solutions

In the late 1980’s, a few top rated insurance companies created financial vehicles now known as Asset Based Care (ABC) Plans. ABC Plans are the perfect mix of self funding and LTC coverage. In short, they guarantee that an expanded pool of money, significantly greater than your deposit, will be available to pay your long term medical expenses should the need arise, thus preserving your family’s inheritance. Should you dodge the “LTC Bullet,” a “death benefit” is passed down to your beneficiaries.

These plans can be funded with: Cash, CDs, Life Insurance, Annuities, Stocks and Mutual Funds as well as IRAs and other Qualified assets (401k, 403b and Deferred Compensation Plans).

Single premiums as well as GUARANTEED annual premiums are available.

Joint Contracts - Another HUGE benefit of these policies, is that two people (including same sex couples or a parent and child) can be covered by one plan. The benefits include: Sharing the underwriting risk and having access to the same pool of money for care. This can be very attractive when one spouse may not have the strongest health history.

Best of all, If you decide the policy no longer meets your needs, your premium will be refunded to you. You can’t lose!

The Life /LTC Strategy in a Nutshell (available for those between the ages of 40 and 80)

Bill and Hillary (both 60 years old)

Funding the policy with a guaranteed

annual premium of:

$7,255*

LIVE

Live a long life and need long-term care

LTC benefit:

$5,000 for 50 months

Optional pool of lifetime LTC benefits - $1,894 guaranteed annual

premium (includes 5% compound inflation

protection)

QUIT

Decide to quit or surrender the policy

Cash surrender value:

End of year 10: $56,814

End of year 20: $127,330

DIE

At death

Death benefit:

$250,000

*Based upon joint male and female, both age 60 preferred underwriting class, minimum 4% cash value accumulation, minus cost of insurance. Numeric examples are hypothetical and were used for educational purposes only.

The Life /LTC Strategy in a Nutshell (available for those between the ages of 40 and 80)

Bill and Hillary (both 60 years old)

Funding the policy with a

single premium of:

$108,110*

LIVE

Live a long life and need long-term care

LTC benefit:

$5,000 for 50 months

Optional pool of lifetime LTC benefits -

$44,609 single premium (includes 5%

compound inflation protection)

QUIT

Decide to quit or surrender the policy

Cash surrender value:

End of year 10: $123,701

End of year 20: $170,328

DIE

At death

Death benefit:

$250,000

*Based upon joint male and female, both age 60 preferred underwriting class, minimum 4% cash value accumulation, minus cost of insurance. Numeric examples are hypothetical and were used for educational purposes only.

When are LTC benefits paid and where can the care be received?

Long Term Care insurance policies have benefit “triggers” that need to be satisfied before benefits are paid for care. These triggers are:

The inability to perform 2 of 6 ADLs (Activities of Daily Living): Bathing, Continence, Dressing, Feeding, Toileting and Transferring

OR

The diagnosis of a Cognitive Impairment, such as: Alzheimer's, Dementia or Parkinson's

Care can be received in a Nursing Home, Assisted Living Facility, Adult Day Care, Hospice or at Home (Home Health Care).

The Deficit Reduction Act and The Pension Protection Act: Recent Legislation impacting Long Term Care

1. Encourages preparation for personal needs

2. Reduces reliance on government programs

3. Provides tax advantages to those that prepare

The Deficit Reduction Act

• Signed into law February 8th, 2006

Three major sets of provisions related to Long-Term Care (LTC):

• Changed Medicaid eligibility for LTC

(From 3 years to 5 years)

• Home equity exemption

(Limit of $536,000 of home equity)

• Annuity treatment

(The state must be listed as the beneficiary of the annuity)

The Pension Protection Act

• Signed into law August 17th, 2006

Section 844 of the act allows for certain annuities to be treated as tax-qualified Long-Term Care insurance:

• Annuities must only be funded with after-tax premium sources

• Must meet the guidelines set forth in the Health Insurance Portability and Accountability Act of 1996 (HIPAA)

(HIPAA is the law that set standards for long-term care insurance benefits to be considered income tax-free)

Do you currently own an

Annuity? Call your insurance

company and ask if you will

receive a 1099-R or 1099-LTC

when you start drawing down

your annuity for LTC expenses.

$50,000 basis

+

$250,000 gain

=

$300,000 cash value

1035 Exchange

Long-term care

benefits received

TAX-FREE

$300,000

Existing Non-Qualified Annuity

(funded with after-tax dollars)

HIPAA qualified PPA

eligible annuity

The Annuity/LTC Strategy in a Nutshell (available for those between the age of 40 and 85)

George and Barbara (both 84 years old)

Funding the policy with an

existing annuity valued

at:

$300,000

LIVE

Live a long life and need long-term care

LTC benefit:

$8,697 for 36 months

Optional 36 month pool of LTC benefits - $15,809 guaranteed

annual premium

QUIT

Decide to quit or surrender the policy

Cash surrender value:

End of year 5: $298,146

End of year 10: $333,355

DIE

At death

Death benefit:

$300,000

Numeric examples are hypothetical and were used for educational purposes only.

How will you protect your assets from a Long Term Care disability?

•Cash

• Brokerage Accounts

• Retirement Assets

• Home Equity

• Investment Property

• Insurance

Since 1996, Eisenberg Insurance has been customizing forward thinking solutions for wealth transfer planning and

asset protection.

Adam Eisenberg, CLTC (Certified in Long-Term Care) adam@eisenberginsurance.com

2699 East Main Street Bexley, OH 43209

614-528-0011 888-739-4281 Toll-Free

abltc.eisenberginsurance.com

Licensed Nationwide