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Long-Term Care Planning: What Advisors Should Know

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What You Need to Know

  • Physician and advisor Carolyn McClanahan outlined how advisors can help with LTC decisions.
  • Long-term care planning should start as soon as someone is diagnosed with dementia.
  • Families planning to self-fund nursing home care should expect to need at least $200,000.

As clients age, or as they need help with aging family members, there are steps advisors can take to help them prepare for long-term care.

Christine Benz, director of personal finance at Morningstar, spoke with Carolyn McClanahan, an advisor, physician and founder of Life Planning Partners, on Friday during the Morningstar annual conference. As an aging relative can be difficult to discuss, following some simple steps can alleviate issues for both the caregiver and the care recipient, one or both of whom might be clients.

Here are some of the ideas they discussed:

The time to make long-term care decisions is when the person is in their 60s or 70s — or even earlier.

Dementia typically doesn’t happen until the 60s, and then chances of onset double for each five years thereafter, McClanahan noted. She said that things to consider and discuss when developing a plan are:

  • Whether the living situation is appropriate. For example, is the home multiple floors? Are the doorways wide enough to accommodate a wheelchair?
  • When the person should quit driving, and an alternative plan for transportation.
  • How health care decisions should be made.
  • Financial decision management, i.e. when someone should take over their financial matters.

Watch for signs that hospice care is needed.

McClanahan noted four signs of diminished quality of life that can indicate it’s time to move to a hospice facility:

  • The client or family member has severe difficulties with communication, or can no longer communicate.
  • They cannot feed themselves.
  • They cannot groom themselves.
  • They no longer interact with others.

What can advisors do?

Advisors can help clients organize and complete finance-related tasks and documents such as:

Personal service contracts: These can be expansive and should include who will handle what, including payment for services. A contract can be drawn up to help designate who will be the main caregiver — even if that person is an unpaid relative or friend — as well as determine payment (i.e. 10 hours a day for seven days a week) and set aside funds from the estate to pay. McClanahan also noted this can help them qualify for Medicaid sooner.

Financial best practices: Bills must be paid on time, and foreseeable expenses should be handled as soon as possible, McClanahan recommends. For example, if the roof needs replacing, better to do it earlier. Also, cash flow will need to be determined.

Simplify investments: People often have multiple accounts and brokers. McClanahan recommends simplifying everything: one broker, one Roth, one money management account, and so on, so it is easier to keep track of money and to transfer to a surrogate when necessary.

Surrogate planning: Have a plan that when family notices changes in the client or relative, they will have permission to assign a surrogate.

Ethical will: A document that states the reasons behind what the family is doing. This should go beyond the bare bones and discuss quality-of-life aspects as well as who will handle various aspects of caregiving.

Hospice vs. palliative care: Hospice care, generally, is intended to keep people comfortable near the end of life. But, McClanahan noted, advances in medicine have made more treatments “curative,” which means they can’t be provided in hospice.

Palliative care, by contrast, provides treatment as well as comfort for those with a terminal illness. McClanahan says this care also treats side effects to help with quality of life. Studies have found that if a person gets palliative care early in illness, they will live longer than someone who doesn’t, she says.

Who pays, and how much?

McClanahan said there should be a separate “bucket” to plan for nursing home care within the investment policy statement. Depending on the individual’s health, care could be needed, on average, for two to five years. Having this funding is key because nursing homes may not take an individual without proof of resources — typically two years’ worth.

Therefore, the family needs to plan for a minimum of two years of care, at a cost $100,000 a year or more, and “they should have a cushion at the end of $500,000.”

Further, Medicaid has a five-year lookback, so “as soon as someone is diagnosed with dementia, that’s when you need to start the planning.”

Regarding long-term care insurance, McClanahan noted that policies today have had “devastating premium increases,” but the general premise is “if you can afford it, get it,” for better long-term care.