Evolution and the Missing Link

Image by Noel Feans

When I was in Africa last year we visited the Great Rift Valley, the Olduvai Gorge area, where the Leakey family spent so many years discovering the fossils and remains of our ancestors.   The bones of several hominid ancestors of modern humans have been found there, including those of “Lucy.”  More recently, two other 10 million-year-old hominid ancestors have been discovered there.  These fossils have been of great help in mapping out our evolution.  While this is fascinating to scientists, I am sure it is only merely interesting to those reading this entry.  What is fascinating to us is that we have discovered the missing link between the old version of retirement plans and the version of today which not only provides income, but protects and preserves that stream of income.

Diversified, qualified, non-qualified, defined benefit, and defined contribution plans:  These retirement scenarios are all about getting the money in the plan and protecting that money from premature withdrawals or losses in value to the plan assets.  The missing link is the discovery that if you need long term health care, an insurance company will pay the millions of dollars of care costs with tax-free dollars AND if you don’t need care (which is what we all believe will be our own personal situation), the insurance company will return to your estate all the premiums paid over the life of the policy resulting in no material costs to the insured’s estate.  The missing link is the right kind of long term care insurance policy purchased using federal and state tax deductions, purchased in a way that reduces estate tax liabilities and transfers wealth on a tax advantaged basis.

The effect of this missing link is that it protects the asset base we have all so strenuously and diligently created, the asset base that pays our retirement income.  

By Mark Davis, Esq., CLTC

Long Term Care Costs – The Missing Retirement Link

You don’t have to be an expert on long term care or its solutions in order to have a serious conversation about the impact long term care costs can have on any well thought out tax, estate and retirement plan.  Potential long term health care costs – which can run into the millions of dollars – must be discussed with your affluent clients and should be a part of your overall wealth preservation strategy.  But how can you engage your clients in a serious, consultative discussion?

Part 1 – How to initiate a serious conversation with your affluent clients about long term health care costs 

You are convinced your prospects need long term care insurance – but unless you’re having an extremely lucky day, your prospects don’t even want to think about it, much less talk about it.

So how do we get them to talk to you about a subject that is very high on the list of things they don’t want to talk to you about? To do that let’s get back to their primary financial goals and objectives:

• When they stop working they want an income that is adequate to maintain their standard of living.
• They never want to run out of money.
• They want to preserve their assets for the benefit of their families or charities.

So, let’s put it this way:  which of the following statements to a client has the greater chance of setting up an appointment?

1. Mary, I’d like to talk to you about long term care insurance.

2. Mary, I’m concerned there may be a gap in your retirement plan and I’d like to talk to you about a new method to insure your retirement income (or preserve your assets for the kids, or make sure you won’t lose your income when you stop working).

In all probability statement #1 will get you nowhere whereas Mary would probably be delighted to talk to you about the subjects you mentioned in statement #2.

Click here to see conversation starters that you can use to start a serious discussion about the impact of LTC costs on clients’ incomes and assets.

Sample Pre-Approach Letter

I’m Rich! Why not Self-Insure?

Am I rich? Are you rich? 

A great book was published a few years ago, The Number by Lee Eisenberg, wherein we are asked to determine our individual number – the amount of money we think we should have to base our retirement upon. Everyone has their own “Number” or their own yardstick for determining whether they are rich and, of course, once people hit there “Number” we often increase it as we quickly realize that the income generated from those assets may not be what was expected. Being rich is an individual determination, but one thing is certain for all – whether rich or not – losing the money one has accumulated will not keep them rich or help sustain the wealth of their heirs.

To maintain wealth, we all insure against the risks that may affect that wealth and may decrease our “Number” including life insurance, auto, health, umbrella policies, disability and more. I never hear the question raised with these types of policies, “Should I self-insure?” However, true story, when I asked my financial advisor several years ago about long term care insurance he looked me in the eye and said I should self-insure.

With the Return of Premium rider, yes this makes the insurance more expensive, but with the tax deductibility of premiums, purchasing a long term care policy basically creates no cost to one’s estate. With a no-cost solution available, the advice to self-insure – or the exercise of even thinking about it – becomes absurd for the well-to-do, rich and ultra rich.

Here is an article about the true costs of long term health care when self-insuring:

How Investment and Tax Surcharges Increase the Cost of Long Term Health Care

World Alzheimer’s Day

Alzheimer’s and long term care are two difficult situations that are often discussed in the same breath. The multitude of decisions required once the disease is diagnosed (even before diagnosis, but living with the consequences and sorrow-filled emotions of thinking dementia may be progressing) to the often times awful decisions that must be made as the disease progresses.

As soon as I forget a friend’s name, where I placed the keys, put my book and other daily forgetfulness, I immediately fear Alzheimer’s – I know I am not alone in this situation. As I quickly diagnose myself to envisioning living with Alzheimer’s I think, “What would I want for care and what would be the consequences on my family?

Such thoughts long ago caused me to buy long term care insurance.

For me, I want to stay in the comfort of my own home as long as possible and be around those that I love and love me – at least as long as I am not an undue burden. It is my quality of life decision – quality for me and quality for those I love. Being cared for at home, would allow me to have my care overseen on a daily basis by those that know me best. Knowing I will be properly dressed, bathed and have my needs met are great sources of comfort to me, and I imagine will be to those that care about me.

I have read that those cared for at home have a greater degree of independence and mobility than those secured in lock-down Alzheimer’s units in nursing homes and long-term care centers. With care at home I may still enjoy familiar surroundings, family interaction and the comfort from everyday household activities.

When the time comes and one is faced with a decision: whether to keep a family member at home – I know – requires individual decisions with no right or good answers. At this point in time, being in my fifties and healthy, I know that having a good long term care policy with cash benefits is, for now, the best I can do for me and my family.

Watch this compelling video interview!

CBS News correspondent, Barry Petersen’s wife was diagnosed with Alzheimer’s disease five years ago. He describes what the devastating disease mans to the patient and the caregiver.

Click to play Barry’s Story Part 1.

To view the World Alzheimer’s Report 2010, click here.

All You Need to Know About Long Term Care Insurance

— When people stop working they become entirely dependent upon the unearned income from their savings and investment portfolios.

— When they need long term health care – and there is no insurance to pay for it – income has to be redirected to pay the costs of care leaving them with only two choices:

1. Live on less and experience a reduced lifestyle for themselves and their families or…
   
   
2. Liquidate assets to pay their costs, to maintain their pre-care lifestyle, with these possible consequences:

• Additional taxes may be incurred when assets are sold at a profit, or distributions are made from qualified or nonqualified retirement plans.
• Assets may have to be sold at a loss.
• Assets earmarked for their families’ financial security – including inheritance and estate plans – will be reduced.
• The costs for care could consume the value of the families accumulated assets and they might be left with nothing.

— If you don’t own long term care insurance, and you or a family member needs care, your family will have to choose between living on less or liquidating assets.

— If you do own long term care insurance you can be assured that:

1. If you or a family member needs care the insurance company will pay the costs so your family can maintain its standard of living and preserve its assets.
   
2. If you don’t need care the insurance company will refund your premiums to your family at your death.
   
3. Tax subsidies may pay a substantial amount of your premiums.

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Gaps in the Executive Retirement Plan

Executive Compensation

 

Most corporations invest a goodly amount of time and resources into creating “special” benefit programs for their key management. These plans are aimed at attracting and retaining top talent and include stock options, restricted stock, a variety of nonqualified deferred compensation plans, and just plain perks. Each offering is crafted to build wealth and positioned to keep the company competitive in the global marketplace.  

Despite this effort, many employers have neglected to address two health related threats that can severely diminish the value of these plans.  

Case in point, take the long term disability insurance plan provided by a large corporation for whom we are doing consulting work. The plan provides a benefit of 60% of salary to a maximum annual benefit of $400,000 a year. However, the president’s salary is $1,000,000 and his bonus – which is not insured by the LTD plan – has been averaging nearly $4,000,000 a year. Assuming after tax income of $3,000,000, this executive will lose $2,600,000 a year should he be too ill or too severely injured to do his job – a total of $26,000,000 over the next 10 years (and that does not account for compensation increases). In addition, contributions to his nonqualified retirement plans stop as, of course, will future stock options and grants.  

Another example is that very few of the company’s key employees own long term care insurance. Yet, statistically 7 out of every 10 of them will spend some, or all, of their retirement income on the costs of extended health care. For some the costs will be inconsequential – for others it can run into the millions of dollars from the results of a serious injury or illness; such as strokes, Parkinson’s, Multiple Sclerosis, Alzheimer’s, and even general aging. Needing care, and paying for it, will require a diversion of income and assets from the employees and their families to a wide array of caregivers, nurses, therapists and physicians – hardly the retirement plan they had envisioned!  

Unfortunately, this is an all too common scenario – good plans that are built with great intentions but not fortified with protections against the realities of losing good health. It’s time for directors of executive compensation to get back to the basics – building the plans, then fortifying them by insuring against the risks that can deplete the wealth they are intending to accumulate for the company’s key management.  

Visit WealthSecure’s parent company site, www.corpcompinc.com, to learn how you can close the gaps in executive retirement plans by offering programs such as Long Term Care Insurance and 401kSecure.

Senate Clears Way for Home Health Care Cuts

This blog is not about the Senate’s actions. While I think it is counter-productive to place folks in a nursing home if able to be moderately self sufficient, I find the reaction of those whose benefits will be cut to be telling. The clients of WealthSecure are not in danger of facing nursing home care. Our clients are affluent and obtain long term care insurance policies designed to provide cash and indemnity benefits for the purpose of staying at home. Indeed, our clients would remain at home even without a policy but have found the wealth transfer and tax aspects of their long term care insurance policies to be too favorable to be without.

It has been easy to abstractly envision that care at home is far superior to that in a care facility, but the real life stories of those to be affected by the home health care debate is informative. People maintain the fabrics of life that remain unfrayed – visiting neighbors, keeping up with hobbies, family interaction. Maintaining the basic and fundamental aspects of life that are so enjoyable and necessary. WealthSecure and its parent company Corporate Compensation Plans, Inc., recently put out a White Paper entitled “Is the Small Print Robbing you of Long Term Care Insurance Benefits?” This is helpful reading for those who desire to use the totality of benefits for home health care as long as feasible. What better time of the year to realize that your home is NOT where you hang your hat; home is where our hearts, family and friends gather to weave moments into the times of our lives. Home is where we want to be all times of the year.

A Time to be Thankful

Time to decompress, time to reflect, time to enjoy our families and the larger things of which we are a part. This is the time of year when we see more of our families in addition to realizing how much we mean to each other and how much we care for one another. I am certainly thankful for my family and what they have given to me and allowed me to give to them. It is a cliché to hear others tell you to take a look around and see what we have and to appreciate even the small things – we know this even if such thoughts don’t reach the forefront of our consciousness. At this time of year it is hard not to be mindful of these things and to not be thankful. We can wait until January to make our resolutions – some premised by what we see and think during our family gatherings. Thanksgiving is the time to absorb your good thoughts and actions on those thoughts will come soon enough.

Table Talk

We all go to dinner parties and meet groups of people we have not met before. While I usually like to ask people “what do you do for fun,” invariably, I am asked “what do you do for a living?” Sitting at a dinner table with twelve people is not the time I enjoy bringing up tax-advantaged wealth transfer concepts, but I was stuck and so I did. To my surprise, the conversation captivated the group, which ranged in age from 30 to 60. Also to my surprise, all at the table were going to get or already had long term care insurance – clearly not an ordinary group and not the “usual suspect’s” I often see at dinner parties. As the conversation continued I found that ALL the people at the table had an experience with long term care needs and did not want to put others in the position they found themselves – caring for a family member, watching family assets shrink, and witnessing income become diverted. Yes, the conversation moved on, but I was struck how those who have been affected “get it” from a consequences perspective – both financial and emotional. My goal is to help people “get it” before the consequences occur – but not during dinner.

What is it all about?

Insurance, retirement, security, health care costs…at the end of the day it’s all about making the choices that affect whether we do or do not outlive our retirement income and our family outlive the assets we can transfer to them. That is it, but that is huge! We all see the comforting commercials during the weekend sports events about retirement protection, asset allocation, insurance programs, and investment professionals. Looking through these messages it is easy to see what the real message is: we know your fear and it is about maintaining your lifestyle throughout your life and the lives of your family.

Our business is providing long term care insurance services to brokers, marketing companies and insurance companies. We passionately believe in the need for long term care insurance and have created systems to better communicate the need as well as the consequences of being, versus not being, insured. Since we will all receive the care we need, the issue is larger than getting care. It is about having assets and income protected so that you and your family do not outlive them. This is such an important issue and the effect that having this problem resolved is so enormous on our well being, physically and emotionally, that I now better realize why this business is so important to me.