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The benefits of funding your children’s long-term care plan

While you may have worked to cover a variety of financial risks in your portfolio – such as a volatile stock market, inflation, and low interest rates – have you considered coverage for a long-term care need… not just for yourself (and your spouse, if applicable), but also for your adult children?

If not, there are some advisors who say that maybe you should!

The Real Cost of a Long-Term Care Need

Although nobody likes to dwell on it, the reality is that long-term care is a real possibility – and depending on the type of care that is needed, it has the potential to decimate your savings and other assets.

In 2021, the monthly median cost for just one month in a private room of a skilled nursing facility was over $9,000. A semi-private room was less – but not much – coming in at more than $7,900 per month.

Many people would prefer to receive their care at home – and, depending on their needs, this may be possible. However, even the cost of a home health aide averaged more than $5,100 per month in 2021, while homemaker services were nearly $5,000 per month, on average.

Monthly Median Costs in the U.S. in 2021 for Long-Term Care Services

In-Home CareCommunity and Assisted LivingNursing Home Facility
Homemaker Services: $4,957Adult Day Health Care: $1,690Semi-Private Room: $7,908
Home Health Aide: $5,148Assisted Living Facility: $4,500Private Room: $9,034

Source: Genworth 2021 Cost of Care Survey

According to U.S. government data, once someone reaches age 65, there is a 7 in 10 chance that they will require at least some type of long-term care during their remaining lifetime. Are these really odds that you want to take?

How and Why It Could Make Sense to Fund Long-Term Care Expenses for Your Children

While many adult children obtain long-term care insurance and/or other forms of care expense protection for their parents, is it wise for the situation to be reversed, where a parent (or parents) obtain coverage for their adult children?

In some cases, it might be!

There are actually several ways to do so. For instance, if an adult child is the insured, you could still be the owner of the policy and pay the premium – which, if paid directly to the insurance company (as versus gifting money to your child for the premium payment), the funds are exempt from the gift tax exclusion ($16,000 in 2022). This means that you could pay the premium on the policy AND gift them an additional $16,000 – and in doing so, you can also reduce your own taxable estate.

Another alternative could be to purchase an annuity for an adult child (or children), and then have the income from that annuity start to pay out at a time in the future when your heir(s) may need long-term care assistance.

This can be a particularly beneficial strategy if you have an adult child who is a spendthrift (i.e., who does not manage money well), because rather than having them receive a large lump sum inheritance in the future, the regular payments from the annuity could instead be used for their care needs (or other needs that they may have).

Are You and Your Loved Ones Prepared for the Cost of Long-Term Care?

If you’re seeking solutions for paying the high cost of long-term care – both for yourself and your heirs – an annuity could be a potential option for taking care of this need. But before you make a commitment to purchasing any type of annuity, it is recommended that you first discuss your objectives with a specialist in this area.

At Annuity Gator, we focus on educating people about how annuities work, and where they may (or may not) be a good fit, based on certain objectives. So, if you would like to learn more, feel free to contact us directly by calling (888) 440-2468 or send us an email to our secure online contact form. We look forward to assisting you.

The benefits of funding your children’s long-term care plan

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