“Setting aside assets to pay for long-term care”
Many advisors believe setting aside assets to pay for long-term care, also known as self insuring, is a prudent strategy. Part of this belief comes from a lack of understanding of the many planning options available and the failure to fully understand what is at risk in a long-term care situation.
Thanks to the Pension Protection Act that went into effect in 2010, we now have new ways to fund long-term care plans that will not only give you the protection you need for long-term care, you can maintain access and control of your money and get your money back should you cancel your plan or not use it for care. You also have guaranteed growth on the funds you put into your plan so you don’t have to worry about market conditions or future tax changes because the funds grow tax deferred like retirement accounts and if you use the funds for long-term care, all the proceeds come out tax-free.
However, keep in mind, the main advantage of having a long-term care plan as opposed to an asset set aside to fund care, is the leverage you get with an insurance plan. Meaning with insurance, you are not limited to the amount of assets you have; in fact many long-term care plans can provide an unlimited or lifetime benefit (see client of the month) which means you never run out of money from your long-term care plan.