Long-term care planning often carries significant negative associations. Most clients don’t want to plan for a time when they are incapacitated and require constant care, and the dramatic increases in the cost of long-term care insurance have made this type of planning shockingly expensive for many clients.
Regardless of these factors, clients have to be reminded about the importance of LTC planning—and that this is not always an issue that’s only relevant for those clients nearing retirement.
As clients’ parents age, we should remember that children may, in some cases, be held financially responsible for their parents’ nursing home costs—and that this is no longer an outlandish idea, but one that has actually been legally enforced in the courts within the last five years. Providing clients with viable LTC insurance alternatives can help them avoid the shock of unexpectedly facing the financial burden of paying for parents’ nursing home costs—whether they are legally obligated to do so, or simply want to help their parents receive the best care possible.
Recent Cases Upholding ‘Filial Responsibility’ Laws
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 LTC costs, and to take steps to develop a plan for paying for parents’ long-term care needs.
One of the important modern cases enforcing filial responsibility laws was a Pennsylvania case in which an adult son was held liable for $93,000 in nursing home costs required 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 at the time, and without regard to whether other potential sources of payment (including two other siblings) existed.
In another more recent case, however, the court 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 of that care. 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).
Viability of Filial Support Laws
While these filial support laws may seem antiquated, the cases discussed above were decided in 2012 and 2015. This means that clients should have some degree of concern regarding whether they could be held responsible for long-term care costs incurred by their parents even today. Although there are constitutional questions that could be raised in these cases, so far, the public policy of requiring family to help cover the cost of care seems to have prevailed over the idea of leaving the nursing home on the hook for unpaid bills.
Even for clients who think it’s far-fetched that filial support laws will apply to them, providing for parents when they need care is a priority for many clients, and it’s important for these clients to know that they do have options for planning for these costs that don’t involve simply dipping into savings or taking on debt.
Developing a Plan for Long-Term Care Costs
Long-term care itself has become so expensive that many insurance providers have stopped offering standalone long-term care insurance policies entirely. Those carriers that do offer coverage charge premiums that are prohibitively expensive for many clients, even if the client is healthy enough to qualify in the first place. Despite this, clients still have options for planning for LTC needs.
“Hybrid” or “combination” annuity-LTC products can provide a solution for many clients who want to make sure their LTC needs are covered, but can’t finance the cost of traditional insurance. One appealing aspect of combining an annuity (or even life insurance) with long-term care coverage is that these hybrid products eliminate the risk that the client will never require long-term care coverage—so that paying for coverage would have been unnecessary in hindsight. 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.
These products are also more attractive from a cost perspective, because, 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.
Planning for the financial burden of a large expense over time is always better than facing unexpected costs without a plan. Clients should be advised that they have options that don’t always involve purchasing high-cost LTC insurance, and that the financial outlay necessary to fund those options will not be wasted if they are fortunate and covering the cost of long-term care never becomes an issue for them.
- Read previous coverage of planning with Medicaid-compliant annuities in Advisor’s Journal.
- For in-depth analysis of Medicaid’s resource rules, see Advisor’s Main Library.
- Your questions and comments are always welcome. Please post them at our blog, AdvisorFYI, or call the Panel of Experts.