Long Term Care Insurance

Dear Readers:

There is a gap in coverage for medical care. Medicare will pay for most of your medical expenses as you grow old, especially if you purchase a Medicare supplemental insurance policy that can handle copayments and even prescription drug purchases. Medi-Cal is available for long term nursing home care, and can usually be obtained when needed with a bit of Medi-Cal planning.

The coverage gap is for people who need assistance and supervision with the activities of daily living, but who aren’t so poorly off as to require nursing home care. Regretfully, some nursing home patients fall into this category, because they can’t afford to pay for assisted living, board and care homes or in-home caregivers that would provide them with more comfort and freedom.

While there are some programs that help pay for in-home care, such as In Home Supportive Services and the Veteran’s Administration Aid & Attendance program, most people who need care giving short of being in a nursing home have to pay for it on their own dime.

There is an alternative. Long term care insurance has been available for years. There are restrictions of course. They won’t let you buy a policy when you already need care, so you have to do it sooner rather than later. You also have to be particularly careful about the terms of the policy. You also want to make sure that the insurance will pay for care in your own home. After all, that’s the goal.

The good news is that there is an alternative to traditional long term care insurance policies where you may receive no benefit at all unless you actually receive long term care. There are now insurance companies selling life insurance with a long term care rider. The financial advantage of such a policy is that if you don’t actually need to use the long term care insurance, your family will still be able to collect on the life insurance upon your death. 

If you have an existing life insurance policy, you can cash it in and buy a new policy with the long term care rider in a Internal Revenue Code section 1035 tax free exchange. There is also now a means by which you can use retirement account money in an IRA to buy this sort of insurance.

We have seen a case in which a person sold his $250,000 insurance policy in exchange for a $250,000 policy with a long term rider. When he took ill, the insurance paid out $10,000 a month for five months for care in his own home, and his family inherited the remaining $200,000 upon his death.

Long term care insurance isn’t for everyone, and people have shied away from it due to its cost. However, the opportunity to invest in life insurance with a guaranteed payout and long term care coverage can make providing for caregivers much more affordable.

Len & Rosie

Keep separate property separate by keeping it separate

Dear Len & Rosie,

How do I protect my wealthy parents’ estate (who are both still living and only in their 60’s) from my slug of a step-son mooch? I don’t want him getting any money when I and my husband pass away? I am married and 43 and my husband is 49. I do not want my step-son to get a penny from my parent’s estate. How do I go about this? If you’re married and you inherit a lot of money how does this work? I would like to give it to my niece or nephew or to my own children if I ever have children.

Shauna

Dear Shauna,

The good news is that you do not appear to suffer from any codependency issues of your own, even if your husband is happily enabling his son to live irresponsibly. Even better, everything you inherit or receive as a gift from your parents or anyone else is your sole and separate property. Your husband won’t own it, so he can’t give it to his son unless you give it to him first.

If and when you inherit from your parents, you can protect your separate property by following a simple rule. “Keep separate property separate by keeping it separate.” It’s silly but true. Keep your inheritance in accounts titled solely in your name or, better yet, in a trust you create by yourself and for yourself. If you want to be even more cautious, keep your inherited funds in different financial institutions from those where you and your husband keep your community property. Many banks with online access link all of an account holder’s accounts together, so your husband could inadvertently gain access to your separate property money if the accounts are at the same bank.

It may get complicated if you pass away before your husband. Anything you leave outright to your husband will be his to do with as he pleases, and it’s very likely he’ll leave it all to his son. So if you don’t want your step-son to get it all, you have to leave your inheritance to someone other than your husband after your death, or you can leave it to your husband in a trust for his lifetime benefit.

Anything you leave to your husband outright will go to his son. A trust, however, that pays your husband income only with discretionary payments of trust principal in the event of an emergency will protect your separate property from falling into your step-son’s hands. Practically speaking, your husband should not be the trustee of such a trust, because if he’s in charge there will be nothing stopping him from giving money to his son. You can even leave your half of the community property to your husband in a trust rather than leaving it to him outright. 

You may want to talk to your parents and ask them to also make sure that their own estate plan won’t leave anything to your husband if you die before he does. They may also want to create a dynasty trust to hold your inheritance separately from anything you own with your husband.

Lastly, keep an open mind and hope for the best. People change. Given your step-son’s age, there’s a good chance he’ll grow out of it by the time he’s 30. By then you ought to know for sure whether or not you should leave him an inheritance.

Len & Rosie