Estate planning is defined as the process of preparing for the disposal of an estate’s assets during a person’s life.
Reminding your clients who have neglected to begin their estate planning that there is no need to worry because the government has created one for them is a statement that startles and awakens most everything. The questions to really ask your clients are, would you rather make these decisions on your own in a private manner, have a probate court judge interpret your wishes (through a will) or default to the government plan? Your clients assets will be distributed at your death, the only question is by whom.
There does not come a day when I meet with clients who has it all figured out. Let’s call one couple Mr. and Mrs. Smith. They are going to have their assets payable-on-death or transfer-on-death; maybe they have completed beneficiary designations for their annuities, life insurance and retirement plans. These clients would avoid probate, that is true. However, my question for them (and this should be the question you are asking), is always, what happens if you get sick? What happens if you require long-term care (LTC)?
Failure to incorporate long-term care costs into an estate plan can absolutely wreak havoc on what one has tried to accomplish. For example, let’s look at the Smiths. They are going to avoid probate. Assets will go to their beneficiaries in a timely, efficient, cost-effective manner. However, if either spouse requires long-term care and they spend all of these assets on their health care costs, they very well could have nothing left to avoid probate. Planning for long-term care costs should be a pillar of estate planning.
So what should we know about these issues, and what can we do to solve them?
1. The level of risk is high.
In 2010, the U.S. Department of Health and Human Services (HHS) conducted a study regarding long-term care in the United States. HHS found, to the surprise of many, that 70 percent of those above age 65 require at least some long-term care.
So, first and foremost, this affects the great majority of our clients.
We need to remind the boomers that this percentage is not reflective of their parents’ experience. Seventy percent of the greatest generation did not require LTC services. This number has skyrocketed recently because people are living longer. As life expectancies increase, the negative side effect is that more seniors require LTC services.
Most likely, it has become very difficult for many of your clients to live on one income, many cannot rely on their children to provide this care and an alarming percentage end up in a facility.
Image: AP photo/Bernd Kammerer.
2. The cost is enormous.
The first problem you may come against in selling LTC as part of your clients estate plan associated is the probability of it happening, and the second problem is the financial burden it places on the family’s assets.
On top of everything the family is dealing with, watching a parent or spouse decline at home or worse having to place them in a facility, financially a long-term care illness can be devastating. Present your clients with the clear cut numbers.
HHS found in the aforementioned study that the average cost of care nationwide in a facility was over $6,200 per month. Few in their retirement can afford to pay such costs out of pocket. They begin running through their assets with no end in sight.
This is especially detrimental for a healthy spouse who may require those assets especially when there is also an income loss at first death. Because most women outlive their male counterparts, they are especially affected by these situations. These facts may be hard to accept but when you are confronting your clients with the bottom line they are compelled to take action.
See also: 3 LTC marketing lessons you can swipe
3. Your clients may have no idea protection options are available.
The first thing to do is to reassure clients that helping them is why you are there. I would highly recommend incorporating protecting their assets into the estate plan even if they considering long-term care insurance (LTCI).
Like everything else, long-term care insurance is not created equally and it’s your job to educate and advise your clients on the options that need to be considered. There are numerous factors that must be considered when selling LTC insurance. Questions that need to be asked include:
- What is the monthly amount the client will need now (and in the future)?
- How long might the client care, and what period of care would the LTCI policy cover?
- Can the clients afford to pay premium increases?
- What types of care will the policy cover?
Another issue I always consider is whether the client is comfortable obtaining no benefits from their policies. Meaning, if the best case scenario happens, and the client and their spouse do not require long-term care, are they comfortable only receiving peace of mind?
It is important to assess the pros and cons of traditional stand-alone policies and of asst-based LTC protection alternatives.
Long-term care must be a concern for anyone approaching or planning their retirements. There are few processes (i.e. probate), taxes (estate or otherwise) that can create such a detriment to what your clients have worked so hard to obtain. The bottom line is that you are there to advise and alleviate the stress your clients may experience by protecting their families and assets. For that reason LTC should not be something that is left behind when creating their estate plan.