Advisers fall short on implementation of long-term-care insurance

Most know it's a key part of retirement planning but lack in-depth knowledge when the need for care arises.

Assessing long-term-care insurance needs is part of the retirement planning process, but advisers tend to fall short once the need for care actually arrives.

Older clients are in a crunch at the moment as public spending and eligibility for long-term-care expenses will become more restrictive and private LTC options are still not in widespread use, according to Thomas West, an adviser with Signature Estate and Investment Advisors.

Mr. West spoke on this topic Tuesday at InvestmentNews’ Retirement Income Summit in Chicago. “Clients are coming to me in the middle of a transition that wasn’t in the retirement plan,” he said. That suggests that there’s a need for older people to receive support for long-term-care expenses that will go beyond merely recommending insurance or assuming eligibility for Medicaid.

HOW DO CLIENTS ACT IN A CRISIS?

Put yourself in your client’s shoes. A situation in which an individual needs long-term care is stressful for the person involved and his or her family.

Mr. West shared an anecdote from when his in-laws experienced a long-term-care event at a time when the markets were plummeting. The adviser’s father-in-law and Mr. West’s wife wanted him to pull the older man’s investments out of the market — and he did.

It was a counterintuitive move.

“When people are under a lot of emotional stress, the different parts of your brain that are responsible for objective arms-length analytical decisions aren’t firing the same way,” Mr. West said.

“It was more important to me to be a supportive husband than to be my father-in-law’s adviser,” he said. “If I could’ve done it differently, I would’ve gotten another financial adviser.”

Other families handle these care events differently. For instance, they may be unrealistically optimistic, throwing all their resources toward fighting a disease that they can’t beat.

KNOW LTC AND DRAFT A PLAN

To address these issues with clients, advisers should become familiar with the different degrees of long-term care. There’s insurance for rehabilitation, where the client is recovering from an injury or illness. There’s LTC where the focus is to stabilize the client’s function. Finally, there’s LTC to help manage a dignified death. Each type of LTC will have a different profile in terms of financial needs, and each one will have different prognoses.

When drawing up a plan, Mr. West suggested that clients keep six to 12 months of cash to cover what they consider the “worst-case scenario.” Clients in an LTC crisis tend to pull from cash to fund those surprise needs.

Advisers also need to think about whether there’s a tax strategy around LTC needs: Could these expenses be deductible? Should the client accelerate IRA distributions and realize gains?

(More: Using continuing care retirement communities as a tax-conscious way to address LTC needs.)
Advisers must also have a plan for sequencing withdrawals from the appropriate sources to fund LTC needs, Mr. West said.

Finally, there’s the meeting with clients: Write down all of the actions that you will take and your rationale, Mr. West said. Consider whether it’s appropriate to consolidate accounts or distribute duplicate statements. Be sure to ask about new goals, as goals can change during the LTC process.

Mr. West noted that it’s important to check in on the family once these plans are implemented. After all, if the adviser doesn’t check up on the family amid an LTC crisis, who will?

“We are telling people to plan ahead, but we’re absent when something like that actually happens, and we’re unable to help in the moment,” Mr. West said. “That’s a shortcoming. Our profession needs to evolve.”