People are living longer than ever before. That is why long-term care costs have become a very important part of financial planning. All of these costs should be taken into account before any gifts are made. A common way of addressing long-term care costs is through a LTC insurance policy. The purchase of a long-term policy, however, is not the end of the planning required for clients approaching retirement.
Steps need to be taken to see that the long-term care coverage will be available when it is needed. The problem is that over a third of LTC policies lapse before their owners ever use them. Women over 65 have a 38% probability of lapse, while the probability for men in the same age group is 32%. What’s even more surprising about these lapses is they’re not all caused by inability to afford the premium. A significant amount of lapses occur because of cognitive decline.
Policies that lapse are often policies that were needed by the affected individuals, so it’s important for advisors to ensure that there’s a plan in place to deal with cognitive decline. Not only should financial planning include a durable power of attorney authorizing the agent to handle financial matters if the client cannot do so, but the planner needs to make sure that the agent is also aware of when to step in and what actions to take. Among the actions for the agent to take may be paying the premium for the long-term care insurance.
Another way to protect an aging person is by means of a revocable trust. While revocable trusts have traditionally been viewed as a way to avoid probate costs, they can also be used to provide protection from elder financial abuse, identity theft, and different risks of aging, including the risk of cognitive decline. A trustee may be given responsibility for continuing the long-term care insurance as well as making other payments for the aging client. .In addition, when a revocable trust is created to protect an aging person, the advisor should ensure that the attorney drafting the revocable trust includes a trust protector. A trust protector is appointed by the revocable trust to monitor the accounting of the trust and to see that there is no misbehavior by the trustee. The trust protector may be given the power to fire and replace the trustee of the revocable trust. By adding a trust protector, an advisor can help protect clients from a trustee behaving irresponsibly.