By
Industry and media pundits who perpetuate the idea that LTC is only a "middle class" issue are still focused on the past and miss new reality.
Emerging developments in tax law, product innovation, carrier growth, advanced planning concepts and new analytic technology have converged in the past few years. This trend has created compelling estate-planning opportunities for advisors and their clients regarding LTC.
Estate-planning techniques such as Irrevocable Long Term Care Insurance Trusts and Tax Advantaged Executive Benefits make LTC a sophisticated and important financial planning priority.
Applying estate-planning concepts that include all financial variables related to care and insurance illustrates that extended care events cause substantial asset consumption in affluent households. In addition, when care cost assumptions reflect more accurate cost of care used by the affluent, the estate impact due to LTC events becomes a multimillion-dollar wealth management decision.
The average cost of private room nursing home care nationally in high cost facilities is $347 daily, according to April 2002 data from the MetLife Mature Market Institute. Further, the data show that the cost for home health aides is $27 per hour; on a 24-hour basis, such care would cost $650 daily, $236,500 annually today and, in 15 years, about $500,000 annually.
To me, the potential impact on family wealth should make LTC analysis a topic of importance to anyone offering or seeking professional financial leadership.
In the LTC scenario shown in the chart, only $300 currently is used as the daily cost rather than the $347 high cost average for nursing home care or the $650 daily cost for 24-hour care. Here, over a 30-year estate plan period, Mr. and Mrs. Clients estate will have a net cost for care of $353,000 if they have a LTC policy. If the Clients have no LTC insurance, their net cost to the estate for comparable care in this scenario soars to $3.5 million.
As I see it, the $3.5 million negative impact on lifetime estate values, attributable to receiving care, is reduced to $350,000 if the Clients purchase LTC insurance for approximately $8,000 a year.
The $3.5 million includes: care provider costs ($1.7 million); asset liquidation and tax costs ($.2 million); and loss of investment opportunity on funds liquidated to pay LTC costs ($1.6 million). The $350,000 with insurance projection includes: LTC premium ($184,000); loss of investment opportunity on premium to the breakeven point ($121,000); and future value of LTC costs not covered during the 30-day elimination period ($48,000).
