What agents and advisors should know and what it means for your senior clients
When professional advisors think of ATRA, chances are the first thought that comes to mind is the avoidance of a “fiscal cliff” through the extension of the Bush era tax cuts, and the end of the uncertainty over estate and gift taxes. But did you know that in addition to permanently setting the estate and gift tax exemptions at $5 million (a level that will rise with inflation), ATRA also addressed the impending long term care crisis?
Section 643 of P.L. 112-240 (ATRA) established the U. S. Commission on Long-Term Care. The 15-member Commission (which included Judith Stein, past president and Fellow of the National Academy of Elder Law Attorneys) was created to develop a plan to establish, implement, and finance a high-quality long-term care system.
According to the Commission’s report to the U. S. Congress dated Sept. 30, 2013, the federal and state governments pay for 62 percent of long-term care services (more than $130 billion) through Medicaid. The need for long-term care and the cost to governments will grow dramatically over the next 20 years as the population ages – increasing the burden on already underfunded government health care programs.
A key recommendation contained in the Commission’s report involved the exploration of a private sector solution involving insurance products that assess and expand the conversion of life insurance policies (life settlements) to long-term care benefit plans. According to the Life Insurance Settlement Association (LISA), “… these developments provide a significant and compelling mandate for the life settlement industry to coalesce around a massive effort to expand the awareness, information and knowledge of the benefits a life settlement option may provide for the millions of seniors who are in need of financial assistance for their long-term health care needs.”
In addition to the acknowledgement by the U. S. Long-Term Care Commission that life insurance settlements can present a viable public sector solution to help seniors fund long-term care expenses, the U. S. Department of Health and Human Services also endorses this option at www.longtermcare.gov .
If you are working with clients who have outgrown their need for sizable life insurance policies, you may want to recommend a life settlement to fund long-term care. While your wealthier clients may believe they are self-insured for private-pay, high-quality services such as congregate care communities, continuing care retirement communities, etc., entrance fees to those facilities can range from $20,000 to nearly $1 million – which may not include the monthly maintenance fees. Therefore, it may be to their advantage to help fund long-term care with the proceeds from a life settlement. This approach helps ensure that funds in their existing retirement savings remain invested in the market.