My Thoughts: Last evening, I attended a meeting where the presenter talked about Long Term Care and how it, or the lack of it, will have critical implications for families going forward. Fifty years ago, the issue was resolved by the elderly when they simply assumed their children would take care of them.

Today, with the baby boom generation approaching critical mass, the overwhelming indicator of an upcoming crisis is that the last people baby boomers want looking after them is their children. (A) they don’t want to be a burden, and (B) it’s too disruptive to the lives of their children. Since we live in a society where it’s innapropriate to simply let people die in misery, and we are living longer and longer than ever before, millions of families are going to suffer, both financially and emotionally. Unless…

Most of this comes from Gene Pastula who owns Westland Financial Services in San Diego, CA. I’ve had the pleasure of doing business with Gene and his ideas resonate with a lot of advisors and clients alike.

Companies are raising the premiums on Long Term Care policies as folks are living longer. From the insurance company perspective, this means the claims period lasts longer, and policy owners are not lapsing their contracts. Raising premiums on existing individiual policies is a no no, but on blocks of existing business, it’s OK if they can justify the increase to the respective insurance commissioners.

Contrary to common belief, preparing for long-term care or guaranteeing income for life costs nothing if done correctly. But it can be financially devastating if it is not done at all.

Many people do not realize there is a way to use funds accumulating in an IRA or 401(k) to purchase insurance to protect yourself against what can be a devastating financial issue. Here are some thoughts from Gene about this:

Stretch or no stretch that is the question:

I see it every time I do a client seminar on long term care. A third of the audience raises their hands when I ask “who has to take required minimum distributions from their qualified plan that they don’t need and would rather leave behind?”

There is an app for that….available from the insurance carriers.

1. The Straight Forward Stretch IRA.
• Put the amount of money you want to stretch in an annuity inside the IRA. (a separate annuity for each beneficiary)
• Take only the RMDs as required leaving the rest to grow in the Annuities.
• Sign forms with each beneficiary acknowledging that they will receive their share of the IRA remaining at your death through annual payments for the rest of their lives. At death, each beneficiary will commence receiving annual taxable income for life. Any remaining funds will go to their heirs.

2. More clever way to stretch the IRA
• Use the RMD to purchase one or more life insurance policies for the benefit of the heirs.
• The death benefit can be accessed, tax-free by the insured, if needed for long-term care.
• At death the heirs will receive any undistributed death benefit, free of income tax, allowing them to “recapture” much or all of the taxes paid on the RMDs.
• This can be done in tandem with the Straight Forward Stretch.

The point here is to assist the client who wants to leave a greater after-tax legacy for his/her heirs with assurances that it will all work out as planned, regardless of the uncertainty in the economy, the political climate or even the need to pay for long-term care.