Data has shown that as life expectancy increases more and more of the population over 65 will need some form of long-term care. The majority of people will be able to rely on children or other family members when they are older, for at least a portion of their health-care needs, but what about those who never had kids? How should they approach their long-term care needs in the future?
These clients might assume, incorrectly, that estate plans are only really meant for those with children in order to secure wealth and pass it down to future generations. Wealth and inheritance are principal variables in estate plans, however, they are not the only aspects of a complete estate plan. Other items on the estate planning to do list are not heavily-impacted by whether or not a couple had children.
These estate-related items include writing a will, creating revocable trusts, establishing a durable power of attorney, creating a living wills, and determining health care directives, among others. Here are a few ways that advisors can assist clients without children to get the most benefit from comprehensive estate planning:
1) Long-Term Health Care Planning
It’s important to anyone over the age of 18, regardless of marital, parental or any other status, to have two documents: a Designation of Patient Advocate and a living will. This becomes particularly important for a couple in the middle of their working lives who do not have children. The Designation of Patient Advocate documents allows clients to name someone to make health care decisions if they were to become incapable of making those decisions themselves, up to and including the authority to make end-of-life decisions.
In “traditional” families, the children would step up into that role and many laws have been written with such an assumption in place, but for couples without children, it’s crucial to designate an advocate who can carry out a client’s wishes when they are no longer capable of doing so themselves.
2) Plan for Long-Term Care Insurance before Retirement
Long-term care services, the type of care that assists clients with everyday living needs and activities, have long fallen into a gray area when financial planning. Should they be considered part of retirement plans? Or should they be part of estate plans? This wasn’t a real issue until recent decades because, while estate planning and retirement planning were often carried out by different companies or advisors, life expectancy wasn’t usually long enough for long-term care to be necessary more than a few weeks, maybe a few months.
However, with many people now living well into their 80s and 90s, and medical technology ever-more capable of prolonging life, long-term care is more important than ever. Coincidentally, this gray area has mostly disappeared in financial services as well. Many financial advisors are now full-service investment managers, so long-term care will be part of the conversation. However, what is still often lost is that long-term care is just as important as retirement or estate planning, because it can greatly impact both. For clients with no children, the impact can be magnified if one spouse needs long-term care and there is no plan in place.
It is important to know that Medicare does not cover long-term care services in any way. There is always the option of paying out of pocket, but the reality is that it’s expensive for even the best retirement plans. Most people, specifically those without children, will need some form of supplemental insurance. There are private insurance plans that cover particular types of long-term care that are restricted by Medicare, but most clients will need to shop for long-term care insurance products. These plans pay for long-term care supports and services.
Before clients decide on a policy, make sure they are aware of the daily amount the policy will pay to assist them with care geared towards daily living. That daily amount is the most important variable in long-term coverage and will have the greatest impact on premiums.
3) Create a financial plan balancing finances, charitable contributions and personal goals
Comprehensive estate planning is often more important to couples without children than those with beneficiaries because of the non-inheritance and wealth-preservation issues. Typically, the major concern of couples with children is to preserve wealth for future generations, but for couples without children their wealth concerns center around distribution to other family members, friends, and charities. It is important for a prudent financial advisor to look at wealth and inheritance factors for couples without children as well as the non-inheritance issues.
Without proper estate planning to dictate distribution of assets, state law typically takes over and determines distribution. These laws are written mostly with the idea of keeping cases out of the court system and finalizing the underlying issues as quickly as possible.
With life expectancy increasing, health care costs rising faster than virtually any other expense, long-term care has become an increasingly important part of a comprehensive estate plan. This is especially important for couples with no children who have no easily-determined heirs. Speaking with these clients early in their estate and retirement planning process and making sure that they have plans for long-term care and insurance along with inheritance distributions can insure that as many contingencies are dealt with well beforehand.