Searching for Long Term Care Alternative Searching for Long Term Care Alternative Funding OptionsFunding Options

Life Insurance: “The Living Asset”Life Insurance: “The Living Asset”LTC Funding, LLCwww.LTCFunding.com

Life Insurance: Life Insurance: “The Living “The Living Asset”Asset”

Trusted senior advisors are Trusted senior advisors are alerting their clients and alerting their clients and families that a valuable asset, families that a valuable asset, their their Life Insurance PolicyLife Insurance Policy, , may provide a new funding may provide a new funding source for Long Term Care source for Long Term Care costs.costs.

The Search for Funding The Search for Funding OptionsOptions

• As of January 1, 2011, 10,000 “Baby Boomers” started turning As of January 1, 2011, 10,000 “Baby Boomers” started turning 65 every day; a pace that will continue uninterrupted for the 65 every day; a pace that will continue uninterrupted for the next 20 yearsnext 20 years11..

• The US Government reports that 70% of seniors will require The US Government reports that 70% of seniors will require long term care services at some point in their liveslong term care services at some point in their lives22..

• Less than 10% of seniors own private long term care Less than 10% of seniors own private long term care insuranceinsurance33..

• Long term care includes home health care, assisted living Long term care includes home health care, assisted living facilities, skilled nursing care and memory care facilities.facilities, skilled nursing care and memory care facilities.

Every dayEvery day 7,000 7,000 Americans Start Americans Start Receiving Long Term CareReceiving Long Term Care

1. Pew Research Center, Dec 20102. Medicare.gov3. National Bureau of Economic Research

2010-2011 National Average Annual Long Term Care Costs

Skilled Nursing Facility $83,585

Assisted Living Facility $39,516

Memory Care $85,045

Home Health Care $43,065

1. Pew Research Center, Dec. 2010

The Role of the Family The Role of the Family Care GiverCare GiverA Family Care Giver is an A Family Care Giver is an essential part of the essential part of the senior long term care senior long term care process. process.

By definition, a Family By definition, a Family Caregiver is a spouse, Caregiver is a spouse, adult children, other adult children, other relative or friend that has relative or friend that has a personal relationship a personal relationship with the patient and with the patient and provides a broad range of provides a broad range of unpaid assistance unpaid assistance for an for an older adult with a chronic older adult with a chronic or disabling condition.or disabling condition.

A Metropolitan Life Insurance A Metropolitan Life Insurance

StudyStudy11 released in 2011 estimated released in 2011 estimated

nearly 10 million adult children over nearly 10 million adult children over

the age of 50 care for their aging the age of 50 care for their aging

parents. Currently, 25% of adult parents. Currently, 25% of adult

children, primarily “Baby Boomers”, children, primarily “Baby Boomers”,

provide this type of care to a parent. provide this type of care to a parent.

These family care givers are aging These family care givers are aging

themselves, as well as providing themselves, as well as providing

care at a time when they also need care at a time when they also need

to be planning and saving for their to be planning and saving for their

own retirement. own retirement.

The total estimated aggregate lost The total estimated aggregate lost

wages, pension and Social Security wages, pension and Social Security

benefits of these caregivers is nearly benefits of these caregivers is nearly

$3 trillion, or approximately $3 trillion, or approximately

$300,000 per caregiver.$300,000 per caregiver.The Role of the Family The Role of the Family Care GiverCare Giver

1. Metlife Mature Market Study

Many seniors and their families Many seniors and their families mistakenlymistakenly believe believe Medicare and Medicaid were designed to provide Medicare and Medicaid were designed to provide care for all their long term care needs.care for all their long term care needs.

Medicare/Medicaid and Medicare/Medicaid and Long Term Care CoverageLong Term Care Coverage

• Medicare covers only medically necessary care and focuses on acute care.

• It does not pay for the largest part of long term care services, such as help with bathing, eating, dressing or custodial supervision.

• Subject to certain qualifying conditions. Medicare will pay for skilled care up to 100 days maximum.

Medicare and Long Term Medicare and Long Term Care CoverageCare Coverage

Medicaid and Long Term Medicaid and Long Term Care CoverageCare Coverage

Medicaid was designed for individuals who financially qualify due to their low income or limited assets. It is a state and federal partnership that pays for certain health services and skilled nursing care to seniors. It was not designed to provide long term care services for the general US population.

“If you are interested in exploring Medicaid availability in your state, it is wise to seek the counsel of an Elder Law attorney or Medicaid planner.”

Private Market Private Market Long Term Care “Options”Long Term Care “Options”

It is imperative that seniors and their It is imperative that seniors and their families understand what potential long families understand what potential long term care funding “options” may be term care funding “options” may be available to them.available to them.

Trusted senior advisors such as a: Trusted senior advisors such as a: • Long Term Care Specialist • CPA • • Long Term Care Specialist • CPA • Financial Advisor • Insurance Advisor • Financial Advisor • Insurance Advisor • Attorney • Geriatric Care Manager • or Attorney • Geriatric Care Manager • or a Guardian will be the resources these a Guardian will be the resources these families rely upon in weighing their families rely upon in weighing their long term care funding “options.”long term care funding “options.”

Before charting a care Before charting a care plan you must plan you must understand the family’s understand the family’s financial situation.financial situation.

Alternative Long Term Care Alternative Long Term Care “Options” “Options” Life Insurance: “The Living Life Insurance: “The Living

Asset”Asset”• An owner of a life insurance policy can An owner of a life insurance policy can

transfer,  convert or sell the policy. transfer,  convert or sell the policy. 11

• The sale of a policy for more than it’s The sale of a policy for more than it’s cash surrender value but less than the cash surrender value but less than the death benefit is called a death benefit is called a Life Life Settlement.Settlement.  

• This is a highly regulated transaction.This is a highly regulated transaction.

• The proceeds from a life settlement The proceeds from a life settlement can be converted into a fund used to can be converted into a fund used to pay for long term care services.pay for long term care services.

1. The Supreme Court Case of Grigsby v. Russell (1911) established a life insurance policy owner’s right to transfer or convert the use of an insurance policy.

Alternative Long Term Care Alternative Long Term Care “Options” “Options” Life Insurance: “The Living Life Insurance: “The Living

Asset”Asset”• According to the National According to the National

Association of Insurance Association of Insurance Commissioners (NAIC) there is Commissioners (NAIC) there is over $27 trillion of life insurance over $27 trillion of life insurance in-force today that is owned by in-force today that is owned by approximately 150 million approximately 150 million Americans. Most of these policy Americans. Most of these policy holders have no idea what their holders have no idea what their legal right of ownership is.legal right of ownership is.

• In a 2010 survey, 40% of seniors In a 2010 survey, 40% of seniors acknowledged they had lapsed or acknowledged they had lapsed or surrendered a life insurance surrendered a life insurance policy, primarily because their policy, primarily because their life insurance needs had changed life insurance needs had changed or in some cases felt their or in some cases felt their premium payments were not premium payments were not justified.justified.111. August 2010 Insurance Studies

Institute

What determines how much the What determines how much the life settlement will be?life settlement will be?

• Age of clientAge of client

• Life expectancyLife expectancy

• Amount of Death Amount of Death Benefit Benefit (usually needs to be (usually needs to be $50K+)$50K+)

• Cost of the insurance Cost of the insurance (Premium payments)(Premium payments)

Eligible policiesEligible policies

• Whole lifeWhole life

• Universal lifeUniversal life

• Group lifeGroup life

• And even And even Term Term Life!Life!

Why would a client want to Why would a client want to do this?do this?• Cannot afford the Cannot afford the

premiumspremiums

• No longer need the policy No longer need the policy for its intended purpose.for its intended purpose.

• So rather than So rather than surrendering or lapsing surrendering or lapsing the policy – there is the policy – there is another option.another option.

Conversion of Life Insurance Conversion of Life Insurance into into

a Long Term Care Benefita Long Term Care BenefitThrough a Life Settlement transaction, the owner of an in-force life insurance Through a Life Settlement transaction, the owner of an in-force life insurance policy (term, convertible term, whole and universal life, group) may convert policy (term, convertible term, whole and universal life, group) may convert the death benefit into a long term care plan to assist in paying the costs the death benefit into a long term care plan to assist in paying the costs associated with long term care. Typically, the minimum face value (death associated with long term care. Typically, the minimum face value (death benefit) must by $50,000 or greater.benefit) must by $50,000 or greater.

This benefit is set up through an irrevocable trust by a third party and is This benefit is set up through an irrevocable trust by a third party and is administered by a third party administrator. In turn, the trust establishes a administered by a third party administrator. In turn, the trust establishes a contract with the long term care facility or provider (home health, assisted contract with the long term care facility or provider (home health, assisted living, skilled nursing care, memory center or life care community) as directed living, skilled nursing care, memory center or life care community) as directed by the former policy owner. If the senior needs to change facilities, a new by the former policy owner. If the senior needs to change facilities, a new contract is established between the trust and the new facility. contract is established between the trust and the new facility.

Importantly, in the event the policy seller dies prior to the trust being fully utilized, the funds Importantly, in the event the policy seller dies prior to the trust being fully utilized, the funds remaining in the trust are distributed to the designated beneficiaries. remaining in the trust are distributed to the designated beneficiaries.

Life Insurance Life Insurance Fund to pay Fund to pay for Long Term Carefor Long Term Care

• Irrevocable trustIrrevocable trust

• Funds paid directly to the care Funds paid directly to the care providerprovider

Benefit Example #1Benefit Example #1

Benefit Example #2Benefit Example #2

Benefit Example #3Benefit Example #3

Life Settlement Life Settlement TaxationTaxation

IRS Revenue Ruling 2009-13 (Aug 2009): IRS Revenue Ruling 2009-13 (Aug 2009):

1.1.Term policiesTerm policies: The aggregate amount of premiums paid above the cost of : The aggregate amount of premiums paid above the cost of insurance or amount required to keep policy in force are considered the basis and insurance or amount required to keep policy in force are considered the basis and are tax free. Amounts of the settlement received above the basis will have life are tax free. Amounts of the settlement received above the basis will have life settlement taxation as capital gains. settlement taxation as capital gains.

2.2.Whole life or universal lifeWhole life or universal life: Life settlement taxation of universal and whole life : Life settlement taxation of universal and whole life policies addresses the more complex nature of these policies. The amount paid in policies addresses the more complex nature of these policies. The amount paid in insurance premiums above the cost required to keep in-force (cost of insurance) has insurance premiums above the cost required to keep in-force (cost of insurance) has no life settlement taxation or in other words – is treated as tax free. The settlement no life settlement taxation or in other words – is treated as tax free. The settlement amount up to the cash surrender value (less premium payments exceeding the cost amount up to the cash surrender value (less premium payments exceeding the cost of insurance) will be taxed as ordinary income. Taxes on life settlement proceeds of insurance) will be taxed as ordinary income. Taxes on life settlement proceeds above the cash surrender value will be taxed as capital gains. above the cash surrender value will be taxed as capital gains.

Consult a tax professional to determine whether Consult a tax professional to determine whether taxes need to be paid on a life settlement taxes need to be paid on a life settlement transaction.transaction.

Life Insurance: “The Living Life Insurance: “The Living Asset” SummaryAsset” Summary

• 10,000 “Baby Boomers” turn 65 each day for the next 20 years.10,000 “Baby Boomers” turn 65 each day for the next 20 years.

• 70% of Americans will need some form of long term care in their lifetime.70% of Americans will need some form of long term care in their lifetime.

• Less than 10% of seniors own Long Term Care Insurance.Less than 10% of seniors own Long Term Care Insurance.

• Health care costs continue to inflate and life expectancies continue to Health care costs continue to inflate and life expectancies continue to expand.expand.

• 25% of Americans over age 50 are acting as caregivers for families or 25% of Americans over age 50 are acting as caregivers for families or friends.friends.

• The emotional and financial cost ($300,000) of being a caregiver is The emotional and financial cost ($300,000) of being a caregiver is staggering.staggering.

• Medicare and Medicaid were designed to provide LTC assistance to Medicare and Medicaid were designed to provide LTC assistance to eligible Americans.eligible Americans.

Life Insurance: “The Living Life Insurance: “The Living Asset” SummaryAsset” Summary

• More than 150 million Americans own over $27 trillion of in-force life More than 150 million Americans own over $27 trillion of in-force life insurance.insurance.

• Supreme Court established (1911) that life insurance is an asset that can be Supreme Court established (1911) that life insurance is an asset that can be transferred /sold in a secondary market.transferred /sold in a secondary market.

• Life settlements allow individuals to sell, transfer or convert their life Life settlements allow individuals to sell, transfer or convert their life insurance into a Long Term Care benefit.insurance into a Long Term Care benefit.

• Settlement offers are determined by life expectancies and premium costs Settlement offers are determined by life expectancies and premium costs that are transferred to the purchaser of the Life Insurance Policy.that are transferred to the purchaser of the Life Insurance Policy.

• An LTC Benefit is funded through an irrevocable trust in the event the death An LTC Benefit is funded through an irrevocable trust in the event the death of the insured, any remaining funds are paid to designated beneficiaries.of the insured, any remaining funds are paid to designated beneficiaries.

• Professional tax counsel should always be consulted regarding Life Professional tax counsel should always be consulted regarding Life Settlements.Settlements.

This presentation was brought to you by LTC Funding, LLC and Trusted Senior Advisors, Long Term Care Facilities and Providers in Your Geographic Area. 

As stated earlier we have two core beliefs:1. To ensure that every senior and their family (often the primary caregiver) has a complete understanding of what financial “options” may be available to them to assist in paying for long term care costs; and 2. To align seniors and their families with local “trusted advisors” and to provide assistance with identifying long term care facilities and providers in their area.

If you do not have a local trusted senior advisor please contact us and we will have a senior advisor from your area contact you. LTC Funding, LLCwww.LTCFunding.comgisakson@LTCFunding.com

Thank you from all of us at LTC Funding.