Advisers short-sighted about long-term care

Apparently, the best way to get a client thinking about long-term care is to turn the attention on family members. Few clients — particularly male ones — think seriously about the possibility that they could require care in a nursing home or help at home with the activities of daily living. Harley Gordon, president of The Corporation for Long-Term Care Certification Inc., said the best way to get the point across is to emphasize what extended medical assistance would mean for the client's loved ones. “Men aren't motivated by risk; they believe the worst will happen to someone else,” Mr. Gordon said on Tuesday at InvestmentNews' Retirement Income Summit in Chicago. “But they respond to consequences." The consequences of long-term medical problems can be severe, and often have a devastating impact on loved ones. What's more, paying for such care can dramatically impact a client's ability to keep financial commitments, Mr. Gordon noted. Simply telling clients that they may end up requiring care can trigger a great deal of denial, he said. Clients tend to be more open to the subject when they understand that caregiving will fray the physical and emotional well-being of their family members. That also requires advisers to reposition long-term-care insurance as not a mere product, but as a stream of income that can help fund the overall financial plan. “The daily benefit is used to pay for care, which allows those the client loves to supervise rather than provide the care,” said Mr. Gordon. “If the care is paid for, there is no reason to reallocate dollars that were previously committed to supporting his lifestyle.” Mr. Gordon added that advisers ought to rethink the idea of self-insuring for long-term-care events. Surprise medical events could require clients to liquidate assets and subject themselves to a raft of taxes, as well as run the risk of selling investments in a down market. And while investments and other assets, when totaled, may sound like a lot of money — at least enough to cover long-term care emergencies — it really isn't much. For instance, $1 million in assets will only provide a gross amount of $50,000 per year for care, Mr. Gordon said. Additionally, misconceptions abound on how Medicare, Medicaid and the U.S. Department of Veterans Affairs cover the cost of care. The facts: Medicare doesn't pay for custodial care, while the VA's Aid and Attendance Enhanced Pension Benefit program subjects elderly veterans to strict asset limits, requiring them to have no more than $80,000 in assets, Mr. Gordon said. He added that while Medicaid provides custodial care in a facility, clients need to qualify financially, which means they need to spend down their assets and are subject to a five-year “look back” period. The spend-down can easily derail any plans a client may have had for retirement. Mr. Gordon warned that advisers who ignore long-term care do so at the peril of their own clients and their practice. “Many advisers don't understand the impact a need for care has on their business model,” he said. “You have to believe it has an impact on what you do each day.”