Long-term care strategies for affluent individuals

Long-term care planning is a critical consideration for everyone. But there are some issues unique to high-net worth individuals (HNWI), who often have the financial means to self-insure or fully pay for their insurance coverage. Relying exclusively on personal wealth to address potential long-term care needs may overlook strategic opportunities for leveraging assets efficiently. At the same time, HNWI who self-insure can face significant risks and complexities.

Let’s explore how you can better use your financial resources to secure comprehensive long-term care planning while preserving wealth and enhancing your overall financial plans.

Understanding long-term care

Long-term care is not merely a consideration for the elderly; it encompasses a variety of services that can be necessary at any stage of life due to chronic illness, disability, or cognitive decline. These services can include assistance with daily activities such as bathing, dressing, and medication management. They also include skilled nursing care and rehabilitative services, often provided over extended periods.

• In-home care: Assistance with daily activities such as bathing, dressing, and meal preparation.
• Assisted living facilities: Residential settings that provide personal care services in a community environment.
• Nursing homes: Facilities that offer skilled and unskilled nursing care for individuals who require greater levels of support.

Studies show that even the healthiest individuals are at risk of needing long-term care as they age. In fact, a report by the National Center for Aging and Disability highlights that nearly 56% of adults with no prior health issues may face a long-term care need due to accidents or other unforeseen circumstances^‡. These findings reinforce the importance of planning for long-term care, even for those who may feel healthy and robust.

The financial reality of long-term care

Rising costs

While HNWI may have substantial assets, the costs associated with long-term care can be significant. According to Genworth 2023 Cost of Care survey, the national median cost for a private room in a nursing home surpasses $116,800 per year. Additionally, home health aides can charge upwards of $75,500 per year for around-the-clock care^†. Even with substantial wealth, these expenses can quickly erode wealth if not strategically managed.

Family dynamics and responsibilities

The unpredictability of health can lead to significant care needs, and often families step in as caregivers. For HNWI, this scenario can introduce complexities not only in managing care, but family dynamics. Many families are spread across the country, and caregiving responsibilities may fall on one family member, creating feelings of stress and isolation. It’s common for family discussions about care to become emotional and complicated, especially when relatives have differing opinions on the best approach. This can lead to conflict and division among family members if not managed effectively.

Impact on estate planning

Self-insuring can have detrimental effects on estate planning. The depletion of assets due to high costs can reduce the inheritance intended for heirs and impact family wealth over generations. Additionally, emotional stress can arise from physical, emotional, and financial strain, leading to difficult family dynamics and decision-making.

The myths of self-insurance

I can afford it

While HNWI may have the financial means to cover current costs, the potential for escalating expenses should not be underestimated. With an annual inflation rate for long-term care costs averaging around 5%, what seems affordable today may not remain so in the future.

I'll just use my investments

Relying on investments to fund long-term care can be risky, particularly in volatile markets. For instance, during economic downturns, investment values can decline just when care needs increase, leading to a precarious financial situation. Significant withdrawals to fund care can disrupt investment strategies and long-term financial goals.

I’ll plan when the time comes

Postponing long-term care planning until it’s needed can significantly limit options. By that time, securing insurance or finding proper care is challenging, and health conditions may prevent the individual from qualifying for coverage.

Leveraging assets for long-term care planning

Investing in long-term care insurance

HNWI should consider long-term care insurance to leverage their assets. By securing a policy, clients can transfer the financial risk of long-term care costs to the insurer, allowing them to preserve their wealth for other investments or their loved ones. Many policies offer inflation protection, helping to ensure that benefits keep pace with rising health-care costs.

Utilizing hybrid products

Hybrid insurance products that combine life insurance with long-term care benefits can be particularly appealing. These allow affluent clients to leverage their life insurance policy not only as a death benefit but also as a resource for long-term care needs. Additionally, many of these policies also include inflation protection to help the benefits keep pace with the costs of care. Finally, hybrid solutions also eliminate the use-it-or-lose-it objection often faced with traditional long-term care insurance, by providing value to the beneficiaries through the death benefit.

Utilizing life insurance or annuities with LTC riders

Some life insurance and annuity policies offer riders that provide long-term care benefits if the insured needs assistance. This can be an attractive choice for individuals who want to ensure that they have some level of coverage for potential long-term care needs.

Establishing health savings accounts

For those who qualify, health savings accounts (HSA) can serve as a tax-advantaged way to save for future medical expenses, including long-term care. Contributions to HSAs are tax-deductible, and withdrawals used for qualified medical expenses are tax-free. This strategy effectively allows individuals to leverage their assets for future healthcare needs while enjoying tax advantages.

Estate planning considerations

A well-structured estate plan can help to ensure that assets are allocated efficiently to meet long-term care needs without jeopardizing the financial legacy intended for loved ones. This includes strategic gifting strategies, trust formations, and the use of life insurance to cover potential care costs.

Proactive planning key steps:

1. Assess your risk: Evaluate personal and family health history to gauge the likelihood of needing long-term care in the future. Understanding these factors can better inform planning strategies.
2. Consult professionals: Work with financial advisors, estate planners, and elder law attorneys to create a comprehensive long-term care strategy that aligns with overall financial goals. Professionals can help navigate complex insurance products, tax implications, and legal considerations.
3. Regular financial reviews: Periodically reassess your long-term care plan to reflect changes in health, financial status, and family dynamics. As circumstances change, so should your planning strategies.
4. Educate your family: Involve family members in discussions about long-term care planning. Educating them about costs, options, and personal preferences can build a supportive environment, making it easier to navigate decisions when the time comes.

While self-insuring may seem like a practical choice for HNWI, the reality of long-term care and the impact on financial plans and estate planning cannot be ignored. By taking a proactive approach to long-term care planning and exploring alternative strategies, affluent clients can explore ways to leverage their assets while protecting their wealth. Long-term care planning can help to ensure their future care needs are met without compromising their financial legacy.

Getting the advice you may need

Don’t leave your long-term care planning to chance. Acting now can lead to greater security for you and your family in the years to come. To learn more, please contact your Huntington Private Bank team to see how we can help, or find a Huntington Private Bank Office near you.