As I discussed in my previous post, “Business Succession and Long Term Care,” the financial independence component of business succession planning has become more complicated with the growing concern about long term care. However, with the accumulation of wealth, there is reduced concern regarding the availability of resources to pay for long term care, if appropriately addressed.
Based upon historical data, in current dollars, $500,000 of cash earning 4% gross income should provide sufficient liquidity to easily satisfy the average private pay cost for almost twice as long as the average stay in a nursing home. Assuming probabilities and mortality, for a married couple $750,000 should easily do it. However we have reviewed previously that long term care is not a simple issue because you may not be capable of making the “when”, “where” and “how” decisions regarding the various forms of graduated care, the quality of care and the timing of your ultimate enrollment in the nursing home of your choice.
Notably you may have no children to address these very important questions. They may be too busy running their business and attending to their families. These are very difficult decisions from afar. Furthermore, long term care demands accountability or over time the quality of care may be compromised. Also, if you have children to help out in these matters, after they assume control, they may simply disagree with the level of care that you want and cut expenses to increase their inheritance. Due to the medical or mental circumstances driving your need for long term care, you would likely be in no position to argue and your children’s cost cutting would ultimately prevail at your expense. As you address your business succession planning it should consider the possible unavailability of a family long term care advocate or the inherent conflict of interest associated with children administering for their long term.
So considering the financial and family dynamics potentially impacting your long term care wishes, how you can appropriately plan to ensure your expectations are fulfilled independent from depending on your children or other family members?
The first of two solutions would be to form a Living Trust that would be funded with sufficient cash to pay long term care cost for you and your spouse.
A “Living” Trust means that you would currently develop and adopt a trust and fund it with sufficient assets to fund your care. The trust document should explicitly stipulate the specific level of care that you want without sparing any detail regarding where you want to be and how you want the level of care monitored to be sure that your perception of quality does not change after you are enrolled. This is a very important personal financial planning document and could also serve as a foundation for your estate plan by going on to stipulate how you want your assets managed and dispersed upon your death. The trust should be revocable so if you changed your mind regarding your specific long term care or estate dispersion wishes, you could change the trust.
Of course, you would be the grantor and current trustee of the Living Long Term Care Trust. But here’s the most important point. To make sure your long term care instructions are addressed, a non-family member could be designated as your successor “long term care trustee”. Whereas a family member may be unavailable or tempted to reduce the cash outlay associated with their parent’s long term care wishes, fiduciary laws dictate that a non-family successor trustee follow the specific trustee instructions. The inherent conflict of interest associated with “spending your inheritance” is avoided. After your death, you could continue with the non-family trustee or dismiss him/her, stipulating that your children would now take over and serve as the trustee or co-trustee of your estate management and dispersion.
Read my final blog of this series titled, “What You Should Know About Long Term Care Insurance.”
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