How Long-Term Care Insurance Fits Into Your Estate Plan
Long-term care insurance can fit into an estate plan by helping pay for care, so less of your estate goes to care costs. Some policies also pay a death benefit to your beneficiaries. Coordinate it with your will or trust, beneficiary designations, and powers of attorney, and ask an attorney and tax advisor how it applies to you.
What do estate plans leave out?
An estate plan says who gets what. It usually doesn’t say how care would be paid for, and care costs can change what’s left to pass on.
Where do care costs meet your estate plan?
Care paid from savings, retirement accounts, or home equity reduces what passes to your heirs. Medicaid can pay for long-term care after you’ve spent down most of your assets, and states are generally required to seek recovery from the estates of people who received certain Medicaid long-term care benefits. Rules and exemptions vary by state, so confirm with an elder law attorney. See Long-Term Care Insurance vs. Medicaid. (NAIC Shopper’s Guide)
How does each way of paying affect what’s left?
- Savings: dollars spent on care don’t pass on.
- Insurance: premiums are a cost, and the benefit can pay for care so other assets stay available. Some policies also pay a death benefit.
- Medicaid: requires spending down, and may involve estate recovery.
How does long-term care insurance fit, by type?
- Traditional: it generally pays only if you need care and has no estate value, though optional refund features exist at extra cost.
- Hybrid life insurance: it pays a death benefit if you never need care. Benefits used reduce it, and some policies, including the coverage we offer, guarantee a minimum.
- Hybrid annuity: what remains passes under the contract’s terms.
See How Does Long-Term Care Insurance Work? and What Happens If I Never Need Long-Term Care?.
A coordination checklist
- Beneficiary designations: name them, add contingents, and keep them current.
- Policy ownership: know who owns the policy, and ask an attorney whether a trust should.
- Powers of attorney: make sure your agent can handle policy matters, like paying premiums and filing claims, and keep policy documents where they can be found. See Planning Ahead for Cognitive Decline.
- Health care directive and HIPAA authorization: they let someone talk with the insurer and your doctors.
- Will or trust review: check what changes if care costs reduce your assets. If one child becomes the caregiver, ask an attorney about fairness and any caregiver agreement. See How to Divide Caregiving Between Siblings.
- Medicaid rules: understand the look-back period, and don’t transfer assets without advice.
- Taxes: a death benefit is generally paid income-tax-free to beneficiaries. Estate tax treatment depends on ownership and the size of the estate, and premium and benefit tax rules vary. See What Is a Tax-Qualified Long-Term Care Insurance Policy?.
Questions for your attorney, tax advisor, and agent
- Attorney: How should my documents address long-term care costs and policy matters?
- Attorney: Should a trust own the policy, and what are the Medicaid implications in my state?
- Tax advisor: How are premiums, benefits, and any death benefit taxed for me?
- Agent: What would my beneficiaries receive if I never use the coverage, or use some of it?
What are the common mistakes?
- Outdated beneficiary designations
- Policy documents no one can find
- An agent under a power of attorney who can’t act on the policy
- Assuming Medicare will pay
Staying Power is a licensed insurance agency that helps people plan how care would be paid for alongside the rest of their plan.
Get started to see what care costs and how to fund it.
Frequently asked questions
Does long-term care insurance protect my inheritance?
It can help pay for care so other assets stay available, but it doesn’t guarantee that any amount passes to your heirs. Premiums are a cost, and benefits have limits.
Is a death benefit taxable?
Life insurance death benefits are generally paid income-tax-free to beneficiaries. Estate tax treatment depends on ownership and the size of the estate, so ask a tax advisor.
Should a trust own my long-term care policy?
It depends on your situation. Ask an estate planning attorney.
