Published in the March 20 – April 2, 2019 issue of Gilroy Life

Many of our clients are concerned with medical costs of care later in life given that many have gone through this situation with their parents. Unfortunately, two-thirds of Americans will need some type of long-term care related to chronic or critical illnesses over their lifetime but do not plan properly by failing to implement a plan that protects other assets.

However, we’ve seen innovative product development and the evolution of hybrid long-term care products using an asset-based approach to fund end of life medical expenses such as long-term care. They generally combine LTC funding and an annuity or life insurance contract which most people are not familiar with.

A couple both 65 years of age met with us to fit one into their retirement planning. Both had gone through the stress of helping their parents establish services and pay for long-term care. The parents, who waited until they were too sick to qualify for coverage, blew through their retirement savings rapidly.

Additionally, the crash in 2008, caused 40 percent of their brokerage account and IRA savings to be eliminated. Making matters worse, capital gains and income tax on needed monies pushed them into a higher tax bracket. By taking more of a depreciating asset to pay $10,000 per month for care, it bumped them into a higher tax bracket, forcing them to pay more in taxes.

This could’ve been avoided with proper insurance coverage and planning. Determined not to repeat what their parents went through, the couple met with us to review options. They had done a great job accumulating assets for retirement having brokerage account and IRA’s totaling $1 million of mixed investments. Sixty percent were in low yielding investments of CD’s, cash, bonds and treasury notes which are commonly considered safe alternatives to stocks.

They also had a non-qualified annuity which provided growing lifetime income and an indexed life insurance policy for tax free income during retirement (better than a ROTH IRA).

Although they had done a good job accumulating these assets, they hadn’t yet planned how to protect and distribute them. The life policies they purchased years ago did not provide this coverage.

Luckily, other annuity and life insurance products are now available to meet their needs. In discussing their health and not rapidly eroding their hard-earned savings in the event of a decline in health, we discussed a joint life insurance policy. The policy guarantees they can get their money back any time. It includes a four percent guarantee on growth (which they can walk away with if they drop the policy) and a lifetime long-term care benefit of $7,500 a month per person. It also includes a tax-free death benefit of $360,000 (guaranteeing to grow over time) passing to their heirs if they both never need the coverage.

This is only one of many options available to address these types of needs. There are many other products designed to protect assets similarly. While they might need to pay the difference in costs above the policy’s $7,500/month per person limit, they were comforted knowing this income comes in tax free.

Implementing the new plan reduced the need for them to rapidly liquidate their accounts at a high cost. The ability now to use money from both taxable and non-taxable accounts to supplement costs of care also improved their ability to stretch their savings and make possible leaving more financial support like helping with college tuition for grandchildren.

For more information on strategies like this and others tailored to your situation, contact a financial professional.

Brian Harrigan and Bob Price are the owners of Executive Plan Design. They are located at 8355 Church St. and you can reach them at (408) 767-2572.