Dear Michael: I am a person who has been retired for some time now. During my lifetime, my husband and I worked hard. He farmed and I worked at a good job where I have a pension and was able to accumulate some retirement savings. My husband died about three years ago and now I live alone–except for my son who lives nearby on the family farm and now does the farming. Back in the day, my husband and I took long-term care insurance…
I am a person who has been retired for some time now. During my lifetime, my husband and I worked hard. He farmed and I worked at a good job where I have a pension and was able to accumulate some retirement savings. My husband died about three years ago and now I live alone–except for my son who lives nearby on the family farm and now does the farming. Back in the day, my husband and I took long-term care insurance, but only for one hundred dollars per day. We did take compound inflation at the time, and now I’m insured for about one hundred and eighty dollars per day. How do I make certain that my son keeps the farm and my daughter gets my savings and I don’t spend it all in a nursing home?
Dear Home Alone:
In your situation, you need to imagine yourself in the following manner.
In the center, is you. Around you are all the buffers and layers of protection to make certain the things that you own will go to the places you want them to go to. If you die without needing long-term care, then there wouldn’t be any problems. However, if you need long-term care, the costs will start eating through these layers one by one until they reach the assets you truly want to protect.
You need to decide how to set up your layers of defense around you to protect the assets you truly want to protect. Prioritize what’s the most important of your assets for your son and for your daughter and then use the rest of your assets as buffers to protect them.
For example, your first layer of defense is always going to be the people around you. If you need care, is your son capable of helping you take care of yourself in your home? Is your daughter able and close by to help you from time to time? This is the least expensive type of protection, but oftentimes, children forget or fail to step forward and help their parents. That’s too bad–because long term, it’s only going to cost them more of their inheritance if they would have stepped up to help you with your needs.
Let’s say you do need more care than can be provided for you by your children, friends or other help. Now, your next line of defense you need to employ is your long-term care insurance. Find out how the policy works–when does it start paying, how much does it pay, and for how long? Does it pay for home care, assisted living, or does it just pay if you’re in a facility?
This is the important part about setting up your defenses to protect the assets that are most important to you. Your children need to be part of the team who all understand what all your defenses are and how and when to use each one of them if you do need expensive long-term care. The reason this is important is because many people don’t sit down with their children and have a game plan as to what’s going to happen. If the entire game plan is in your brain, but your brain is the reason you’re going to the nursing home, we’ve just lost the one person who knew the whole plan! That’s not good.
Your next line of defense is your income. Perhaps you have rent coming in from your son on the farm. You already mentioned your pension, so this is monthly income coming in, and you likely get Social Security, as well. When your setting up your game plan, you can take all of your annual income, divide it by three hundred and sixty-five days and see what this adds to your long-term care insurance. By the way, don’t forget to subtract basic costs from your annual income–land taxes, income taxes, etc., before you do your division.
If you plan for possible costs of care to exceed both your long-term care insurance and your income, then it’s time to prioritize what goes next–land, savings, investments, etc.?
Many people would then say, we’ll, you’ll have to use my savings if it costs more than this. Even in this area, you can be proactive and use your savings more efficiently than just leaving it sit in a CD and make it provide a larger barrier between the assets you truly would like to preserve. Insurance companies are now providing a few different alternatives to CD’s that provide long-term care insurance for you if you need it.
For example, insurance companies offer you three dollars of nursing home coverage for every dollar you invest with the company. Your rate of return you’re receiving now–at an all-time low–is about the same interest you would receive with the insurance company.
However, if you need care and you don’t have enough income or long-term care insurance to meet your needs, it’s better to have an insurance company pay three dollars for every one you invested than it is to lose a dollar for every dollar you had invested in the CD.
Sit down with a competent planner who can help you set up your game plan, bring your family in, let them know how and when you want which of your assets played when needed, and then hope you never need to employ the game plan. But if you do, you’ll be happy you took the time to plan for this possibility. If you’re going to Keep The Family Farm In the Family, make a plan.