The long-term care insurance marketplace has been in decline for some time now—but because of the ever-rising cost of long-term care, the need for long-term care planning remains more important than ever.
Clients who have dismissed the need for long-term care planning in favor of relying upon government-sponsored programs might think again once they realize that their children could eventually be held liable for their long-term care expenses. So-called “filial responsibility” laws, while rarely discussed, could have a major impact on the way clients think about long-term care planning—because the possibility that their children will be required to pay for their long-term care instead of Medicaid could provide just the incentive that some clients need to responsibly plan for long-term care needs.
Filial Responsibility: In General
Filial responsibility laws are state laws that can essentially hold adult children liable for their parent’s long-term care costs. While these laws rarely make the news, they are on the books in 28 states and can provide a powerful motivation to encourage clients to plan for their future long-term care costs.
One of the seminal modern cases in this area was a Pennsylvania case in which an adult son was held liable for $93,000 in nursing home costs incurred to care for his mother after she was involved in an accident. The court in this case found the son liable despite the fact that his mother’s Medicaid application remained pending and without regard to other potential sources of payment (including two other siblings and her husband).
Another case, however, required one sibling to make monthly payments to his brother in order to pay for the cost of their mother’s long-term care. In Eori v. Eori, one brother was providing a significant portion of his mother’s care in the home and, because he was able to prove that his mother could not provide for herself financially, was able to obtain a court order to require his brother to contribute to the cost. While the mother in Eori did have some income, the court determined that it was insufficient to allow her to provide for herself financially (especially considering that her illnesses required 24-hour in-home care).
Long-Term Care Alternatives
While long-term care insurance may be prohibitively expensive or even unavailable to some clients, other long-term care planning options exist to help clients cover the cost of long-term care expenses without reliance upon government programs or the risk of placing the responsibility on adult children.
Many clients find long-term care insurance coverage attractive when it is packaged with a life insurance or annuity product. The primary appeal of combining life insurance (or an annuity) with long-term care coverage is that these hybrid policies eliminate the risk that the client will never require long-term care coverage. The life insurance policy or annuity will provide a standard death benefit—either in the form of death proceeds or annuity payouts—to the contract beneficiaries even if the long-term care feature is never accessed.
The client may also purchase a rider that requires the carrier to continue to pay for care even after the death benefit and cash value of the policy are exhausted. Inflation protection options are available to help ensure that the client’s benefit continues to approximate the rising cost of long-term care.
From a cost perspective, hybrid products have historically been funded with a single premium payment, which made them prohibitively expensive for some. However, as the market has evolved, some carriers have developed products that can be paid for in installments over time. Exchanging a current annuity or life-insurance contract in a tax-free exchange can also allow a client to purchase a hybrid policy without using a large sum of money.
While many clients may avoid planning for long-term care expenses, the possibility that their children may eventually become liable for the cost of this care can provide the much-needed motivation to encourage these clients to plan responsibly for their future care.
Read some previous coverage of long-term care planning in Advisor’s Journal.
Check out in-depth analysis of long-term care insurance, see Advisor’s Main Library.