If you help clients prepare for long-term care (LTC) expenses, you may wish you had an elder law lawyer living in your desk.
Panicked swimmers try to drown the lifeguards who come to rescue them. Panicked consumers flail at the agents and brokers who offer them long-term care insurance (LTCI), annuities, and related products and servies.
LTCI prices are increasing. Contract terms are changing. The insured population is aging, and more of the early LTCI buyers are filing claims. Claimants and families need to squeeze as much cash as possible from the LTCI policies, because many pension plans, 401(k) plans and employer-sponsored retiree health benefit plans are delivering less value than expected. Adult children hit hard by the Great Recession need to squeeze as much cash as possible from Mom and Dad.
Kerry Peck, managing partner at Peck Bloom L.L.C., an elder law firm in Chicago, sees what happens when poor LTC planning leads to litigation.
“Money does strange things to people,” Peck says.
Peck has been helping clients with trusts, estate planning and general elder law issues for more than 30 years. He co-wrote Alzheimer’s and the Law, an American Bar Association book about the legal implications of dementia. He recently talked in a telephone interview about the major sources of LTC planning-related litigation risk.
1. Failing to warn clients about the importance of LTC planning to retirement income planning, estate planning and other types of personal financial planning.
Peck says having realistic arrangements in place to pay for LTC costs is critical to maximizing the chances that a client’s financial planning and estate planning will work.
For a client with $500,000 to $2 million in liquid assets, the cost of getting years of dementia care either at home or in a nursing home could be a big drain on assets. The need to come up with cash to pay LTC bills could also be a serious problem for clients who have large holdings of potentially hard-to-sell assets, such as small businesses or commercial real estate, and only small allocations of cash.
Making sure a client has taken the need to plan for LTC costs into account could be a way to keep children or other heirs from getting into bitter court fights, Peck says.
“Often the battle is over the cost of care,” Peck says. In some cases, he says, adult children “want the cost of care to be the cheapest possible, so they can inherit more money.” In some cases, Peck adds, adult children may try to conserve estate assets by exaggerating their ability to care for elderly parents at home.
See also: Watch for these elder abuse red flags.
2. Failing to mention private LTCI or other LTC financing vehicles, such as LTCI and life and annuity products with LTC features.
The private LTCI industry has entered a tunnel of terror in recent years. The issuers have faced underwriting and investment challenges. Insurers and agents find they still have to educate consumers about what LTCI is and why consumers should consider buying it.
Peck says he faced a similar wall of denial when he started his law firm. “When I got into elder law,” he says, “nobody had ever heard of it.” Today, he says, the agents and brokers who sell private LTCI face a similar wall of denial.
“We’re just on the cusp of change,” he says. “It’s still pretty early. The emphasis in our society is on youth.”
But Peck says insurers and producers should keep offering LTCI. “I think they’re in the right place,” he says. “I see nothing but growth in the marketplace. Government entities are cutting back on the ability of individuals to qualify for Medicaid.”
Consumers need tools they can use to prevent the kind of financial pressure that could shred their carefully designed long-range plans, Peck says.
3. Glossing over the need to talk to a good elder law specialist about creating the documents caregivers need to provide care, and setting up checks and balances to detect and remedy any shortcomings in caregiving.
Many of the cases Peck handles involve questions about older people’s mental capacity, guardianship for older people, or accusations of exploitation by caregivers.
He says clients could avoid some of those painful, costly battles by taking two obvious but often-neglected steps:
- Choosing the right people to manage their affairs in the event that they lose the capacity to manage their own affairs; and,
- Having the documents in place to make sure their own wishes shape their care in the event that they become incapacitated.
Producers should make sure clients understand the importance of having any planning-related documents in use in their state, such as a will, a living will, a power of attorney for property and a power of attorney for health care, Peck says.
“When documents are in place, there’s less likelihood that the children are going to fight,” Peck says.
4. Leaving yourself open to accusations that you are selling LTCI or other products to people who are already incapable of making major financial decisions.
Peck encourages sales representatives who are selling any intangible product to older consumers to try to get the consumers’ adult children involved, to minimize the risk that the children will later say the reps took advantage of their parents. When the clients have bad relationships with their children, reps should come up with other ways to show that a sale to an older client was a good sale, he says.
“I think you can turn the family into allies,” Peck adds.
Generally, he says, agents selling LTCI should be able to show a client’s adult children that LTCI benefits them, by protecting the value of a parent’s estate.
See also: Making estate planning a family affair.