September 17, 2007
COMMENTARY: A long-term solution | Business owners planning for the future should consider long-term care insurance
By Timothy M. Vogel And Kerry Peabody, Elder Law Attorney, Vogel & Dubois, Portland, And Long-term Care
Successful business owners commonly plan for current and future businesses finances, family financial needs, medical/health insurance coverage, short and long-term disability insurance, as well as retirement funds and estate planning. In response to the threat of long-term care costs, they need to review their options if they or a family member need home health care, assisted living or nursing home careˆservices commonly referred to as long-term care (LTC).
Two examples illustrate the need for serious planning in face of the long-term care threat. Consider Jane, who is in her 90s and has acquired a significant share of the family business. Over the years, her Alzheimer's has advanced so her care needs have gone from assisted living to nursing home care with a current annual cost of over $100,000. She has exhausted her home equity, savings and investments.
The cost of buying back her ownership share is straining the business finances. When the buyback is completed, she may qualify for MaineCare, the one federal-state program that provides some long-term care coverage. But she will have burdensome documentation requirements to prove her business transactions have not violated MaineCare's complicated transfer-of-asset rules. These rules require an invasive examination of all financial transactions during what is presently a three-year "look-back" period. Significant financial penalties could result.
Now consider John, who grew a profitable business from the ground up. Now in his late 50s, he is looking forward to passing the business to his children. His personal and business assets have been mixed together. In a fall at home, he suffered a traumatic brain injury that caused significant cognitive loss. His general power of attorney ˆ the only legal document in which he had granted his wife decision-making authority if he became incapacitated ˆ did not grant her sufficient financial and legal authority to manage his business. His wife had to petition Probate Court for financial management authority as his conservator, a process which can take months. She is worried about how the business will operate, how to pay for the care John now needs and her own financial security.
The threat of long-term care arises because those costs are not covered by medical/health insurance, short- or long-term disability insurance, or Medicare. That is because most LTC is not medical care, but simply custodial care ˆ help with daily activities like bathing, dressing and eating as the result of an accident, chronic illness or advanced age. LTC may also require supervision because of a cognitive impairment such as Alzheimer's.
Containing costs
Today's medical advances mean we're surviving things that a few years ago would have been fatal. However, surviving a serious accident or stroke doesn't necessarily mean you'll maintain your independence. That's where long-term care services become necessary, and that's where Medicare and medical/health insurance fall short.
The cost of LTC ˆ commonly provided at home, in assisted living, or in nursing home facilities, sometimes for months or years ˆ can be staggeringly expensive. Today, the average annual cost in Maine for a private nursing home bed is over $92,000. Due to cost-shifting from government programs, this rate will increase much faster than inflation.
Very few business owners have considered the personal and business implications if they or a family member need LTC for an extended period. Usually they have more to lose than others because they've built personal and business assets that are often indistinguishable. If the business is not prepared with legal and financial strategies, and long-term care insurance, their family and their business are all going to be impacted, emotionally and financially.
Advice: Business owners should consult an elder law attorney to build incapacity decision making and long-term care planning options into their current estate and business succession strategies. In the event the individual does not meet the medical underwriting requirements for long-term care insurance, the elder law attorney can help develop other strategies fitted to the particular situation.
Many business owners are now purchasing long-term care insurance for themselves and their spouses. They are discovering significant tax advantages, including business and personal deductions on both federal and state returns. What's more, under current law business owners can purchase long-term care insurance for themselves without having to provide such coverage company wide.
While long-term care is a fact of life for more and more business owners, it need not be a disaster. With proper legal planning and documents ˆ covering incapacity strategies, estate and business succession planning, as well as long-term care insurance ˆ business owners can effectively protect themselves, their families and businesses. The key is in planning before the crisis occurs.
Two examples illustrate the need for serious planning in face of the long-term care threat. Consider Jane, who is in her 90s and has acquired a significant share of the family business. Over the years, her Alzheimer's has advanced so her care needs have gone from assisted living to nursing home care with a current annual cost of over $100,000. She has exhausted her home equity, savings and investments.
The cost of buying back her ownership share is straining the business finances. When the buyback is completed, she may qualify for MaineCare, the one federal-state program that provides some long-term care coverage. But she will have burdensome documentation requirements to prove her business transactions have not violated MaineCare's complicated transfer-of-asset rules. These rules require an invasive examination of all financial transactions during what is presently a three-year "look-back" period. Significant financial penalties could result.
Now consider John, who grew a profitable business from the ground up. Now in his late 50s, he is looking forward to passing the business to his children. His personal and business assets have been mixed together. In a fall at home, he suffered a traumatic brain injury that caused significant cognitive loss. His general power of attorney ˆ the only legal document in which he had granted his wife decision-making authority if he became incapacitated ˆ did not grant her sufficient financial and legal authority to manage his business. His wife had to petition Probate Court for financial management authority as his conservator, a process which can take months. She is worried about how the business will operate, how to pay for the care John now needs and her own financial security.
The threat of long-term care arises because those costs are not covered by medical/health insurance, short- or long-term disability insurance, or Medicare. That is because most LTC is not medical care, but simply custodial care ˆ help with daily activities like bathing, dressing and eating as the result of an accident, chronic illness or advanced age. LTC may also require supervision because of a cognitive impairment such as Alzheimer's.
Containing costs
Today's medical advances mean we're surviving things that a few years ago would have been fatal. However, surviving a serious accident or stroke doesn't necessarily mean you'll maintain your independence. That's where long-term care services become necessary, and that's where Medicare and medical/health insurance fall short.
The cost of LTC ˆ commonly provided at home, in assisted living, or in nursing home facilities, sometimes for months or years ˆ can be staggeringly expensive. Today, the average annual cost in Maine for a private nursing home bed is over $92,000. Due to cost-shifting from government programs, this rate will increase much faster than inflation.
Very few business owners have considered the personal and business implications if they or a family member need LTC for an extended period. Usually they have more to lose than others because they've built personal and business assets that are often indistinguishable. If the business is not prepared with legal and financial strategies, and long-term care insurance, their family and their business are all going to be impacted, emotionally and financially.
Advice: Business owners should consult an elder law attorney to build incapacity decision making and long-term care planning options into their current estate and business succession strategies. In the event the individual does not meet the medical underwriting requirements for long-term care insurance, the elder law attorney can help develop other strategies fitted to the particular situation.
Many business owners are now purchasing long-term care insurance for themselves and their spouses. They are discovering significant tax advantages, including business and personal deductions on both federal and state returns. What's more, under current law business owners can purchase long-term care insurance for themselves without having to provide such coverage company wide.
While long-term care is a fact of life for more and more business owners, it need not be a disaster. With proper legal planning and documents ˆ covering incapacity strategies, estate and business succession planning, as well as long-term care insurance ˆ business owners can effectively protect themselves, their families and businesses. The key is in planning before the crisis occurs.
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