Long-Term Care Insurance In Estate Planning

At one time, families relied on each other for many things, including older relatives relying on younger family members to help care for them as they aged. However, the National Academy of Social Insurance estimates that 15 million aging adults will require long-term services and supports by 2050, while the number of unpaid family caregivers is expected to decline, reaching only 11 million by 2040. This means that you may need to rely on paid caregivers to assist you when you are at your most vulnerable. Where will the money to pay those caregivers come from? If you have not planned for this possibility, you may have to sell assets you worked very hard for to pay for your care, leaving your loved ones very little or even nothing. However, if you consider long-term care insurance as part of your estate planning, you may be able to pay for the care you need and still leave your loved ones with financial peace of mind. At Wakefield Law Firm, Danielle Wakefield and her dedicated team may be able to assist you with determining how to incorporate your long-term care needs into your estate plan. Call (949) 274-9975 to schedule an appointment at our Carlsbad office or at your Southern California home. 

What Is Long-Term Care Insurance?

People of any age may suffer injuries or accidents, chronic illnesses or diseases, or cognitive impairments such as Alzheimer’s Disease or dementia, which interfere with their ability to perform daily activities such as bathing, eating, dressing, toileting, and taking medications on their own. Sometimes this occurs due to the aging process. When an individual cannot take care of themselves independently, they often need a caregiver at home or to be moved into a facility with a staff of caregivers. This is long-term care. Many people currently rely on family for unpaid caregiving, but for those who cannot rely on family or do not wish to, long-term care insurance is a way to pay for this care. 

Long-term care insurance is a type of coverage that pays for or reimburses covered long-term care costs. These policies offer different coverages and pay or reimburse benefits in various ways depending on the policy purchased. Each state has its laws and regulations regarding this kind of insurance. Unlike health insurance, which is used more frequently and throughout life, long-term care insurance is typically used only as the individual ages, so it is often included as part of estate planning. 

California Long-Term Care Insurance Options

The California Department of Insurance indicates that the state allows only three categories of long-term care insurance to be sold: Nursing Facility and Residential Care Facility Only, Home Care Only, and Comprehensive Long-Term Care. Individuals can purchase individual or group policies. Individual policies are those between the individual being insured and the insurer and cannot be canceled unless the premium is not paid. Group policies, on the other hand, are between the insurer and a group, such as an employer for its employees or a trade or professional association for its members. Group policies are often less expensive than individual policies, but they can be canceled at any time. If this happens, the individual would then have to continue the coverage at a higher price, convert the policy, or seek new coverage. 

Nursing Facility and Residential Care Facility Only

This long-term care insurance covers skilled, intermediate, or custodial care in a nursing home or similar facility. Assisted living care in a Residential Care Facility or a Residential Care Facility for the Elderly is also covered. Home care is not covered. This coverage is better suited for individuals who prefer to live in a facility and have paid, trained caregivers available around the clock. 

Home Care Only

Home care only long-term care insurance covers home health care, adult day care, homemaker services, personal care, hospice services, and respite care. However, care provided in a nursing home, assisted living facility, or any other similar facility is not covered. This type of policy is better for those who are sure they would want to remain in their home regardless of their health status. 

Comprehensive Long-Term Care

Comprehensive long-term care insurance is a combination of the other two types of policies available in California. This type of insurance covers care in a facility and at-home care. These policies must have at least eight benefits: the six offered in Home Care Only policies and the two provided in Nursing Facility and Residential Care Facility Only policies. 

Benefits of Integrating Long-Term Care Insurance in Estate Planning

When people first learn about long-term care insurance, they often equate it with being similar to car insurance. While individuals purchase long-term care insurance with the hope they will never need to use it, that is the only similarity to car insurance. While individuals can purchase car insurance based on how much the premium is and whether the coverage amounts meet California’s minimum requirements, long-term care insurance is more complicated. 

Asset Protection

Without insurance, long-term care can quickly deplete an individual’s assets and savings. This results in the individual having limited assets and funds while they are still alive, and leaving little to nothing for their heirs. Neither of those scenarios is what people typically want. Long-term care insurance covers the cost of care, helping to preserve an individual’s assets. This allows them to live a more comfortable life after retirement, knowing that care is covered if needed, and to feel confident about what they are leaving to their loved ones. 

Access to Quality Care

Like many other things, the price of long-term care can be indicative of its quality. Whether an individual needs care at home, in a nursing home, or other residential facilities, long-term care insurance allows the individual to purchase coverage that meets their needs. While Medi-Cal may be an option some individuals consider, it only covers those who have been admitted to a hospital, skilled nursing facility, intermediate care facility, or convalescent home. Purchasing long-term care insurance also allows individuals to choose a policy with coverage amounts that match their specific needs, including the location and type of service they require. In contrast, Medi-Cal does not cover every location or service that may be necessary. 

Predictable Payments

Long-term care insurance premiums can be expensive and may increase over time. However, these premiums do offer predictability with annual or monthly payments and advance notice of premium increases. This allows individuals to budget more easily, especially after retirement when their income may be smaller and fixed. Additionally, these consistent payments provide peace of mind, allowing the individual to feel confident that if and when needed, the financial resources will be available to cover their long-term care without taking away from the legacy they would like to leave for their loved ones. 

Medi-Cal Eligibility

Some individuals have enough assets that they do not need to rely on long-term care insurance, while others have so few (or can “spend down” their assets) that they meet eligibility requirements for Medi-Cal. The California Department of Health Care Services (DHCS) has an Estate Recovery Program, which seeks repayment of Medi-Cal benefits from estate assets that are subject to probate. Therefore, individuals considering Medi-Cal for their long-term care needs may want to speak with an estate planning attorney at Wakefield Law Firm about different methods of asset protection to avoid having those assets recovered by the state later. By integrating long-term care insurance into their estate planning, individuals can ensure that they protect their estate while also having insurance to cover all their long-term care needs. 

Financial Planning

Integrating long-term care insurance into estate planning benefits financial planning in several ways. First, it helps preserve the individual’s estate, ensuring that they leave behind the legacy they want to hand down. Next, long-term care insurance may have tax benefits, including being tax-free in some instances. This means that including it as part of estate planning can have additional financial benefits beyond paying or reimbursing for long-term care. Finally, insurance ensures that potential future needs are addressed and the financial resources required will be available if and when needed. 

Future Planning

By providing the financial resources needed for long-term care and protecting an individual’s assets, long-term care insurance also gives individuals the ability to plan for their future. They can explain their wishes to their family and provide details about the insurance, so that if and when the time comes, their family can help them get the care they need. However, before that day arrives, the financial stability provided by the insurance allows the individual to plan their retirement. With predictable payments for insurance and long-term care covered by that insurance, individuals can assess their budget and assets and make plans for traveling, upgrading or downgrading their home, and other things they have long dreamt of doing during their retirement years. 

Key Considerations About Long-Term Care Insurance

While there are many potential benefits to including long-term care insurance in estate planning, there are also some considerations to carefully review before moving forward with any policies. From cost to the impact on an individual’s estate, understanding the implications is imperative before choosing a policy. 

Coverage Options

Budget is a concern when choosing a long-term care insurance policy, but so are the features and coverages the policy offers. Each policy offers different features and coverages, so it is essential that individuals carefully consider their specific needs, along with their budget, to determine which policy is right for them. Individuals should compare the coverages and features of several policies against each other, as well as against a list of coverages and features that are important to them. 

Premium Costs 

Premiums for this type of insurance can be expensive, so it is essential for individuals to consider the potential benefits, the impact on their estate of having coverage versus not having it, and their overall financial situation. Additionally, the cost can vary wildly based on an individual’s health, age, and other factors. Individuals may want to consider consulting with an estate planning attorney, financial advisor, and other experts to discuss the impacts of premium expenses and the potential value of a long-term care insurance policy for them. 

Policy Limitations 

Some policies, such as the Nursing Facility and Residential Care Facility Only, will only cover care in specific settings. Other policy limitations individuals may find include a waiting period before benefits begin, no coverage when the individual is in a government facility, or limitations or exclusions for mental illness, alcoholism, or drug addiction. Limitations on the total amount of coverage or the duration of coverage, as well as restrictions on coverage for extensive medical care, such as treatment for a terminal illness, are also possible. Individuals should carefully review policies and consider how any limitations may impact their care when needed.

Benefits Qualifications

Many policies place qualifications on the benefits offered, such as requiring policyholders to pay for care out of pocket for 30 to 90 days before the policy begins to pay, or limiting the duration of benefits. There may be other qualifications that must be met before the policy will pay or reimburse benefits. Individuals should ensure they understand these qualifications and are prepared to meet them if coverage is needed.

Impact on the Estate

While most people use long-term care insurance to preserve their estate and protect their assets, it is vital to consider the overall impact on the estate. Individuals should consider how the costs of long-term care will impact their estate, as well as how the costs of insurance premiums will affect it. Additionally, they should consider the effect of coverage on their beneficiaries. 

Estate Planning and Long-Term Care Insurance Strategies

When it comes to integrating long-term care insurance into estate planning, there are several strategies to consider. Whether a particular strategy is suitable for an individual will depend on the size of their estate, their plans, and other unique factors. Discussing these strategies and others with an estate planning attorney can help individuals narrow down which ones are right for their needs. 

Revocable and Irrevocable Trusts

Revocable and irrevocable trusts are both ways to protect assets from probate. Because Medi-Cal may attempt to recover benefits paid from assets that are subject to probate after an individual’s death, protecting these assets from probate can be crucial for individuals considering Medi-Cal for all or part of their long-term care needs. Trusts can also offer additional benefits, such as protecting assets from creditors or lawsuits, allowing individuals to place conditions on assets, reducing taxes on the estate, and providing a mechanism for managing assets during incapacity. A trust can also be used to ensure that the assets it contains are not used to pay for long-term care. 

Life Insurance Riders

If an individual has a life insurance policy or is considering purchasing one, they may consider adding a long-term care rider. This rider allows the policyholder to use some or all of the policy’s death benefit for long-term care if it is needed. This can be a less expensive way to pay for long-term care without purchasing a complete policy that may never be used. If the individual uses the death benefit to pay for long-term care, their beneficiary would receive a reduced payout (or possibly no payout, if the entire benefit is used for care) when the policyholder dies. However, if the policyholder never needs long-term care, the beneficiary will receive the full payout, and the policyholder will not have spent more money on a policy they did not need. 

California Partnership Program

DHCS has partnered with a select group of long-term care insurers to offer special policies called “Partnership policies.” These policies are designed to give customers peace of mind, knowing they have purchased a quality policy. Each insurer and policy offered meets stringent requirements. Each policy provides Medi-Cal asset protection, among other features. 

How a California Estate Planning Attorney Can Assist You

While there is no requirement to hire an attorney, consulting with one may provide you with additional information and insight into which strategies for integrating long-term care insurance into your estate plan are most suited to your needs. An experienced California estate planning attorney with Wakefield Law Firm may also be able to assist with other aspects of your estate plan, such as writing your will, creating a pour-over will, or preparing advance directives. Call 

(949) 274-9975 to schedule an appointment to create or review your estate plan in San Diego, Orange, Los Angeles, Riverside, and San Bernardino Counties, California.