Does your client's Long-Term Care Plan pass the Fiduciary Standards Test?

Does your client's Long-Term Care Plan pass the Fiduciary Standards test? Probably not.

It’s not your fault. It's a problem that our Industry has caused and continues to perpetuate by putting “quotes” in front of you and your clients without any real understanding how it works for that individual client and their care support, much less their Portfolio. We continue to take a premium approach to a planning conversation. We have given false expectations from premiums through claims. We continue to promise levels of care that will be hard for most families to live up to due to their economic or geographical constraints. We haven’t been able to prove that getting coverage in place was a good decision, even when it has rate increases. Thus, making our clients feel less confident about their decision and less trusting in our recommendations.

To be honest, I never thought about it this way until I had to help Advisors with rate increases or dealing with those who only recommended Asset-based Long-Term Care plans. Then, I realized that we had a problem. A problem in showing good financial planning practices because for Long-Term Care planning there were none.

I understand that we have a lot of people who are struggling to save for retirement. I get it. I’m not talking about them. I’m talking about those who can afford to plan ahead and for those who really want Home Health Care. I want to make sure Advisors are putting their best foot forward when it comes to the Long-Term Care planning. I do not want delays or lack seriousness from all involved to create a plan of last resort. The Covid Pandemic should have been a wake-up call for our Industry that we understand that the public wants Home Health Care more than ever and we’re going to show them how to pay for it. Supply & Demand problems in the future will make all levels of care more expensive, especially Home Health Care. Are your clients prepared?

If you struggle with Long-Term Care planning, it’s probably because you don’t feel good about your recommendations. That’s because there’s never been a way of telling if you did good job or not. Yes, there are variables that cause concerns such as rate increase for Long-Term Care Insurance. However, even when we adjust existing LTCI plans, the client still has a plan that works better than what most Advisors can see because they’re only paying attention to premiums. If Long-Term Care Insurance was part of a plan, like any other variable product we recommend, you could handle rate increases and still feel that you did your best.

Here are some things to consider when developing a Long-Term Care plan that is in the client’s best interest, even when they don’t follow your guidance to the letter:

Make it Important - Once you’ve accepted the fiduciary responsibility of a client’s Portfolio, you oversee both the accumulation phase and distribution phase of their retirement plan. Long-Term Care is part of the distribution phase. We need to change our attitude towards the Long-Term Care planning part of their retirement plan because it may be the most important. Why? Because it’s the one part of the plan that you have the least amount of control. If a client’s health takes a downturn, then it most likely is not going to get better over their lifetimes or they will be the first to need care.

Take Long-Term Care planning seriously. 1) Will the plan pay for the level of care that your clients desire? 2) Plan for care as if you were planning on being the caregiver yourself or were the one who was receiving care. What level of care do you want? 3) What risk are you and your clients willing to take if you wait?

Address your client’s health ASAP – Get ahead of your client’s health issues. You must know your client’s health and any recent changes if you’re going to treat Long-Term Care with the same fiduciary standards as the rest of their plan. Reactionary is not fiduciary.

When I ask about medical conditions and prescriptions, I get usually "I don't know" way too often. As part of planning ahead for any medical expenses, you need to know what medical conditions they currently have and prescriptions they take. I know it’s uncomfortable, but it’s part of their planning. This is not just for Long-Term Care. Their future healthcare expenses outside of an extended care need must be addressed too.

If they are not ready to make a move on their Long-Term Care plan, make sure that you have “safety nets” in place with TERM Life Insurance in case their health changes and they become uninsurable for Long-Term Care Insurance. This takes the burden off you and back onto your clients with an escape clause (Conversion) before age 70.

Parents’ Health Matters – Family History of Longevity and/or Dementia do need to be part of the conversation. Longevity means that your clients may not need care for a long time. Thus, making care more expensive. Also, their likelihood of living longer increases the probability of memory loss.

More important to your client’s planning today is the fact we must the have “the talk” before Mom or Dad are diagnosed with Dementia. A family history of Dementia will limit your client to $5,000 a month (with one carrier) vs. $10,000 that would have been available if they secured coverage before they got the call about a parent’s memory issues. That’s a $60,000 a year difference. Again, reactionary is not fiduciary. Long-term care planning includes the parents’ health now that you know it can affect your client’s Long-Term Care plan.

This is critical for clients who live in high Cost of Care areas or when working with High-Net-Worth families. Your HNW clients expect Home Health Care, and they sometimes are the most critical of how the dollars are spent.

Set the Commitment - Set the commitment needed to cover risk from the beginning of your relationship with your clients. This sets a goal of benefits for your clients and gives you a starting point of the money it will take to divert that risk. Also, setting the commitment for the Long-Term Care part of their Financial Plan sets your commitment for a long-term relationship with your clients.

For 98% of your clients, it’s better to start with a “commitment” for some form of coverage and use this to compare your plan design. We made the mistake of not explaining this to all those people who bought Long-Term Care Insurance in the past and we’ve missed an opportunity to shine because the conversation was about premiums, instead of being about the plan. Long-Term Care Insurance rate increases should have been explained better and could have been handled much easier if we would have taken this extra step.

This doesn’t necessarily mean that you fix the whole issue up-front, or your clients must have that much money to put towards a Long-Term Care. It just gives you an idea of what it will take to overcome their risk of needing care. It may take years of enhancements and adjustments to get there. However, if you beat the benefits of the plan we set as their “control”, then both you and your clients win!

Find paths to better benefits - They are looking to you for guidance. Putting quotes in front of them does not work. They’re not the expert. Yes, the product may fit Cash Flow Model, or you can make it work, but it also may not live up to their expectations…especially if they delay past retirement to start their plan. Show them a plan and if they pick a product that doesn't quite work, then show them the most probable moves they’ll have to make later. This includes enhancing the Long-Term Care Insurance, adding Life Insurance or Asset-based Long-Term Care plans to allow their supplementing dollars to last longer.

This just means that you need to look at spreading the cost over a lifetime and show ways to stack several long-term care friendly products together to come up with the best benefits. Long-Term Care Planning can be adjusted or enhanced over time just like any other planning that you do for them. You just want to do this without having to worry about future insurability as much as possible. For many of your clients, this is going to be the only way they’ll be able to afford coverage and the Home Health Care they desire, if they ever need care.

How’s their plan performing? - It's only a product if we cannot test its performance. Let's say you take a lump sum and drop it into an Asset-based Long-Term Care plan. Yes, you know what the guarantees are with that plan design. However, did you show any other plans? What affect does this have on their Income – now or later? Did you show leaving that in their Portfolio to pay for LTCI and Life Insurance? Did you compare benefits? Will it be enough to pay for Home Health Care? How does it work with the rest of the Portfolio for Private Nursing Home Care or the more expensive Home Health Care?

This is where Advisors are going to have problems because they haven’t tested plan designs. They may have just filled a Cash Flow problem that may or may not work for Home Health Care. Future supplementing may use more than earnings only on their client’s Portfolio as well as reduce inheritance for their client’s children. You want to show what you used to compare your recommendation. Something that shows a better story of how you thought out and executed their Long-Term Care plan. This is even more important for the Advisor who takes over your block of business when you retire.

Family & Caregiving (aka Home Health Care) - Caregiving takes a toll on the caregiver’s mental and physical health. This time of your client’s life is hard on them and their families. Does the plan pay family members? I mean paying family members on top of having help from professionals.

One of the reasons that you want the Long-Term Care Insurance and Life Insurance separate is to pay the sibling who lives the closest to help provide support. Home Health Care will not be an option unless family members are there to help. Make sure you have planned on paying family members if they are utilized for your client’s care. This can come from a Care Fund inside the Portfolio while providing care or from the Estate after the death of the parent.

In cases where someone becomes uninsurable for Long-Term Care Insurance, the Life Insurance could pay one or more siblings for their involvement in their parent’s care and their part in saving more of the Estate for their other siblings. This needs to be spelled out in a Letter of Instruction from the parents. This covers a monthly stipend for providing care or reimbursement for any expenses incurred while taking care of Mom or Dad. If done with Life Insurance death proceeds, these dollars will be tax-free.

Remember, the path of least resistance may give them a product, but unless it’s part of an overall sound Financial Plan it may not keep them on a path to receive care at home. Most of the Home Health Care comes from unpaid caregivers. Let’s change this and make sure family members are paid for their caregiving duties.

Better Legacy Planning – Do they want to leave something to their heirs? Which plan pays for the best level of care and passes most to their heirs? ?

Many of your clients are sitting on Tax-Qualified Accounts for their retirement. If they want to pass along more to their heirs, then we may want to think about how RMDs and STRETCH IRA rules work with Care planning as part of their Legacy plans.

Most likely, they will want to spend Tax-Qualified money first to supplement their Long-Term Care plan. If the Long-Term Care plan is tied up in Life Insurance, they may not pull the trigger for claims because that’s the only “tax-free” dollars going to their heirs. In these cases, Life Insurance may be better served as a Death Benefit.

In this same scenario, the Life Insurance becomes a “permission slip” to spend those extra dollars on Mom or Dad’s care, especially if they want the most expensive level of care – Home Health Care. Tax-Qualified accounts may be decreased but the Life Insurance provides “tax-free” proceeds to heirs. This way their inheritance is guaranteed, and Death Benefit can account for the extra spending. Because, it will not be reduced during a Long-Term Care claim, unless it was intended to be used for care.

If you have clients who cannot afford the Legacy piece now, then get the Long-Term Care piece secured and prepare them to take “Mom & Dad’s” money to create a Legacy for their children later. You may want to look at ways to protect insurability. This way their inheritance will go towards Legacy planning that goes to their children rather than Long-Term Care planning that goes to a provider.

After 30 years, I think I finally figured it out. What we were missing is a “Fiduciary Standard” for Long-Term Care planning. My system and software have been developed from working with Advisors from many different Broker/Dealers in the country. I saw we had an issue, and I went on working to fix it.

Our LegacyCare Pro software creates a fiduciary standard for this part of your client’s retirement plan. We test several plan designs up front. We show steps for your clients to take throughout their working & retirement years to come up with their plan. Lastly, we show how their plan performs with their Portfolio and the benefits that will be available when they need care.

I’ll be happy to discuss any of these areas with you when it comes to Long-Term Care & Legacy planning. I am always available to help you with Long-Term Care Insurance rate increases. Let’s work together to take better care of your clients and create a standard that we are all proud to live up to. ~ Barclay (800) 800-0123 ext.102