Episode 32: Essential legal and financial planning for long-term care

Oscarlyn Elder:

We all want the later years of our lives to be joyful, comfortable, and healthy. The best chance of making that happen starts when we're younger with smart and focused planning for our future long-term care. I'm Oscarlyn Elder, Co-Chief Investment Officer for Truist Wealth, and this is, I've Been Meaning To Do That. A podcast from Truist Wealth, a purpose-driven financial services organization. We appreciate you listening.

Today we're continuing our conversation on longevity planning and I'm happy to welcome back two colleagues of mine at Truist Wealth. Jacqueline Parks, who is regional director of advice and planning, and Tony Bryan, senior vice president and wealth strategist. Thank you both for returning to, I've Been Meaning To Do That.

Jacqueline Parks:

Happy to be here. Thank you.

Tony Bryan:

Thanks for having me back.

Oscarlyn Elder:

Jacqueline and Tony, last time we discussed the emotional challenges of longevity planning, like choosing family members for key roles and recognizing signs of dementia. Today let's tackle another tough aspect. The legal paperwork and financial decisions, the prospect of dealing with the paperwork can also discourage folks from getting started. Is that something you've seen happen often?

Jacqueline Parks:

Yes, actually. This is something that we see all the time. Many clients that we meet with either haven't ever prepared or signed legal documents or the ones that they have are really outdated. I'm not exactly sure why. It could be that people just don't like thinking about these issues. We talked about that last time, or perhaps they feel uncertain about the decisions that they're supposed to be making and sometimes that uncertainty could lead to inaction. What I try to emphasize is that these plans are not set in stone. In fact, they should be reviewed and updated regularly as life changes.

So, you're not locking yourself into something forever. You're just putting a framework in place that you can adjust over time. Knowing that can help people feel more comfortable in taking that first step.

Oscarlyn Elder:

We don't like to think about needing care as we age and there's uncertainty around it and that prevents folks from getting started. It's not that way. You take a first pass at it, you put what you think you need in place and then you continue to revisit it. It's an evolution,

Jacqueline Parks:

Right. Just make a plan that's good enough for today and circumstances change and you need to update that, then you always have the flexibility to do it. It is not that difficult to update these particular documents.

Oscarlyn Elder:

The terms long-term care and extended care are often used very interchangeably, but they're not quite the same. Long-term care is often a broader term and generally includes both formal and informal caregiving such as home-based or family-based care. Extended care often we think about as being a more specific kind of care that might be delivered in a medical or a rehabilitation facility. Regardless of what we call it, it's all going to cost money, and often it costs a lot. Both of you spend time with our clients, you're listening and you're talking about these issues. What do you hear in those conversations?

Tony Bryan:

Well, I continue to speak to clients frequently that think that Medicare is going to cover all their long-term care expenses and that is simply not true. Now, it is true that Medicare will pay a little bit under certain circumstances, but for the most part it's not going to pay anything.

In regards to insurance, long-term care expenses fall into a category that I like to call big things. So, my rule is I insure the big things. For example, while I'm working, I insure my income with life insurance and when we insure our house, we insure our car. Those are big things. And I do understand also that some listeners out there may have a need for long-term care insurance, but they may not be able to qualify for long-term care insurance because of their health, and that is very, very unfortunate because it is true that your good health is what actually buys a long-term care insurance. But I'll be honest, it's the next big purchase for my wife and I, so I recommend to everybody to check in with your financial advisor just to review your insurance coverages to make sure everything still makes sense.

Oscarlyn Elder:

We know if someone needs extended care for an extended period of time, it can get very costly. And the two main mechanisms for that to cover the cost would be: assets that you have, so cash or investments that you've built over your lifetime. And then kind of the second pathway that you're talking about there is that there are long-term care insurance policies that can help folks if they need care.

I'm not an insurance expert, so I need to be very careful, but there are different types of policies that have different coverage levels that have all sorts of different elements to them. So, it's really important if you need to engage on this topic, you engage with someone who really understands the space and understands the products that are offered to help mitigate that risk to you.

But importantly what I heard you say was that folks think that Medicare will help fill that gap, will help cover those expenses, and the reality is there's not much there. So, you've got to cover it yourself and you might need planning to help you understand what percentage of your asset base should be bucketed for that type of an expense. You know, you may find that you're in a situation where having long-term care insurance might be helpful.

Jacqueline Parks:

Yeah, I will add that one of the biggest things that I have heard from our clients is that they've really underestimated the cost of care. So, Tony mentions that Medicare doesn't cover as much as you think it might cover, but the number of caregivers that you need, the types of care that you need may be above and beyond what you have anticipated. So, for example, perhaps you've built in the cost of entering into a nursing home or residential care facility, but on top of that you may have separate expenses for medical treatment, therapists, additional caregivers beyond what the standard, you know, resident in that facility is entitled to get or is getting for the price that they're paying.

So, building a financial plan that includes these additional costs is really important when you're at the early stages and preparing for that long-term plan.

Oscarlyn Elder:

Absolutely. Jacqueline, in addition to the direct care that you're talking about, there often can be additional expenses around transportation, around technology because the technology continues to evolve and there may be different therapeutic technology elements that could be very helpful for a situation, but they can be very expensive. Someone who’s focused within financial planning and advising can help you determine what additional factor you may need to add in in your planning because we know folks are underestimating this fairly consistently.

Tony, let me ask you this question. Health savings accounts have become more popular and we know a number of folks are contributing to them on a fairly regular basis. What role can a health savings account, or an HSA, that's the acronym that's used, what role can an HSA play in paying for these expenses either directly or perhaps for insurance premiums?

Tony Bryan:

Sure. A health savings account is an account that is usually paired with what's called a high deductible health insurance plan. You're eligible to contribute to a health savings account up to the limits per year and you can contribute to this, and it's pre-tax, which is wonderful. And not only that, the money in the account also grows tax-free and then when you use that money to pay for qualified medical expenses, that is also tax-free, so it's triple tax-free. It's a wonderful account. Very, very beneficial. And if I had a T-shirt that said, “I love HSAs,” I'd wear it every day because it's a great account.

They can be used to pay for long-term care expenses and like you mentioned, they can use it to pay for long-term care insurance premiums. Now, when it comes to paying for long-term care insurance premiums, there’s only so much that somebody can take out of their HSA each year to pay these premiums, but also keep in mind that long-term care expenses, they add up very quickly. It won't take long to potentially deplete somebody’s HSA account because of long-term care expenses. If it’s possible to pay for out-of-pocket medical costs with other money as opposed to hitting the HSA account, that could be a good thing because you can let that money grow in that HSA account if you don't touch it and then at retirement you can have a very healthy chunk of money.

Oscarlyn Elder:

Kind of what you're saying is that if you use the health savings account and you think about long-term, so let's say if someone is in their twenties or their thirties or forties or fifties even, and they're eligible for a health savings account, what it offers is the potential. You've got kind of the tax advantage, and you've got the ability to invest those dollars and potentially grow that balance significantly over time so that when you retire and/or when you have a need for extended care, perhaps later in life, you've got some bucketed dollars already that you've dedicated to this.

Tony Bryan:

Correct. Absolutely.

Oscarlyn Elder:

And so it's kind of using the tax advantages of the vehicle as well as time and the potential that comes with investing to get you in a better place as you age and may need extended care.

So, when we come back, let's turn to the planning process itself and how to make that go smoothly.

Tony and Jacqueline, we've been talking about planning for extended care in our later years, and you can think of that planning as not just something that you do for yourself but also a gift that you're giving to your loved ones. If you have a good plan for yourself, then they don't have to worry about coming up with one for you in a crisis. We know we should be planning early, but what does early mean in this case and why is it so important?

Jacqueline Parks:

So, when we talk about planning early, it is not just about age. It is about being proactive before there's a health issue or a crisis. There are a lot of practical steps involved, collecting and organizing documents, understanding your financial picture, reviewing and updating asset titles and beneficiary designations, and perhaps simplifying the balance sheet by consolidating old or smaller accounts, identifying the right professionals, and making sure your legal documents are up-to-date. All of that takes time and you don't want to be scrambling in the middle of an emergency.

The truth is we never know when an acute need will arise: an accident, a sudden illness, a decline in memory. Planning early gives you more control and more options and it gives your loved ones a clear path to follow if something happens.

Tony Bryan:

I read somewhere that people avoid talking about long-term care planning, and they say, “It's too soon,” and I read the phrase that sums it up perfectly. The phrase is, “It always seems like it's too soon until it's too late.” And I wrote that down just because I love that phrase. It's so true. There's just too much to do. There's too many professionals that need to be engaged. So, it just underscores everything that talks about planning early. It needs to happen before there's a crisis.

Oscarlyn Elder:

We want folks to plan before there's a crisis. We firmly believe that the outcomes are better if you have that pre-planning versus dealing with everything after the acute or crisis event happens. So, with that, the word organization comes to mind, and so let's get ourselves organized. What are the highest priority documents that everyone should have in place?

Jacqueline Parks:

The essential documents are going to include a will, a healthcare directive, a durable financial power of attorney, HIPAA authorization, and in many cases, a revocable trust.

Oscarlyn Elder:

So, those are the documents. We'll point folks back to some prior episodes where we talked, I think, specifically about wills as well as revocable trust. But maybe let's start out first with what's the difference between the power of attorney and a living will?

Jacqueline Parks:

Well, there's a document that's more broadly called a healthcare directive and that typically includes two parts. The living will is what outlines your specific wishes for end-of-life care such as life support, resuscitation, things like that. And then the healthcare power of attorney is where you are naming someone to serve as your agent to make medical decisions if you can't do it for yourself. In some states these are combined into the single document called a healthcare directive, and in other states, they are kept separate. You'll sign them as two separate documents.

Oscarlyn Elder:

What insights or tips do you have for folks as they're contemplating those two specific elements within the overall healthcare directive?

Jacqueline Parks:

These are difficult issues to think about, but the best thing that you can do for your family members or whomever you're naming as your agent is to communicate with them about your specific wishes. Some people take a very kind of a flip view and say, "Well, what do I care?" And other people have very strong opinions about particular things like, again, like life support. People tend to have very strong opinions on that. If you never have this conversation with your loved one, then in the moment of crisis they're left wondering, "Am I making the right decision? Am I doing what he or she would have wanted me to do for them?" It's very, very difficult.

We actually have a family member right now who has gone through and experienced some period of medical challenges and his spouse was left to make these decisions for him. Fortunately, they had had those conversations and she knew that she was doing what he would have wanted when he couldn't speak for himself. But the worst thing that I could imagine is having to make a really, really tough decision like continuing or withholding life-sustaining treatment without knowing what that person's wishes really were.

Oscarlyn Elder:

If we focus in on the healthcare power of attorney element, which is about not so much end of life, it sounds like, but more about a range of authority that can be given to make healthcare decisions. Help us understand what are the different elements around the range of authority? Are there specific parameters? Are there limitations? Just what insight can you offer us around the healthcare power of attorney element of the directive?

Jacqueline Parks:

I think it's difficult to imagine all the scenarios that might be ahead of you or in the future. Fortunately, virtually every state has a state form that will walk you through. If you sign one or you're thinking about signing one, you could even look online and you could get a sample. What does this look like? Typically, there are a series of questions that say, "Under this circumstance, I would want or would not want this type of a treatment." And you go through and you initial through the document what your selection is. So, it's almost like picking something off of a menu. Yes, no, yes, yes, yes. Whichever your choices are. Again, take the time, talk with your loved ones, think through the circumstances and try your best to indicate what your wishes are.

Oscarlyn Elder:

Jacqueline, we've talked a lot about the healthcare power of attorney. Let's go back to the durable power of attorney. Remind everyone who's listening, what is it and what should we think about related to that durable power of attorney, given what you've shared about the healthcare power of attorney.

Jacqueline Parks:

Right. So, as we mentioned, the various documents that you're going to sign, you may have two documents that say power of attorney on them. And to be very clear, it should say in the heading and in the body of the document, you'll see as well. One is for financial decisions and one is for medical decisions. The financial power of attorney needs to be what's called a durable power of attorney, and what that means is that the duration of the document is going to last even during situations where you're incapacitated.

There are other circumstances where people give a power of attorney, think for example, real estate transactions where it's a very short term or a limited power that's limited in time in its duration, but a durable power of attorney is specifically intended to continue throughout that period in which you are incapacitated. So that's why it's called durable.

Oscarlyn Elder:

This healthcare power of attorney can be someone totally different. Are they often the same person? What do you see happening often with the families that you work with regarding these two? Sometimes I think folks get them confused, but they do have unique elements to them. How do folks, again, think about people that they're asking to serve in those roles?

Tony Bryan:

So, we get the question a lot, can they be the same person? And they could be the same person. You could have a durable power of attorney also be the medical power of attorney. I know we talked about before that the durable power of attorney should be trustworthy and competent, and that is absolutely true. Also, the healthcare POA should be able to talk to doctors. They should be able to understand the different treatment options. They should be ready to ask the doctors tough questions and make decisions based on that person's wishes that they expressed in the medical directive. So, they can definitely be the same person.

Oscarlyn Elder:

And we see families do both. We see families assign or see individuals assign one person to serve in both roles, but we also see families who split those roles. Is that fair?

Tony Bryan:

Yes. Absolutely.

Jacqueline Parks:

I would just add that whomever you name in either document that you include a list of successors because you just don't know. Sometimes the person you've named is not available or they have their own healthcare crisis or they pass away before you get a chance to update the documents. So typically, I would say at least two, if not three or four, additional persons named in order of succession they should serve would be helpful.

Oscarlyn Elder:

You need backups. That's what the successor is, the successor is a backup. You want folks to have a list of not only who is the person that you are authorizing at this moment, but if that person can't serve, who are the successors for that role? You mentioned earlier a revocable trust, and so would you just remind our listeners what is a revocable trust?

Jacqueline Parks:

You can most easily think of it like a contract. It is a document in which you are designating that the trust is going to control the distribution and management of the assets that are contributed to the trust. The trust is going to have a trustee and in the case of a revocable trust, most often the trustee is also the person who's creating the trust or the grantor. This allows you to control the management of your assets through this vessel or through this vehicle during your lifetime. And in the case that you become incapacitated or pass away, whichever happens, whomever is the successor or trustee will step right into your shoes and continue to manage those assets in accordance with the terms of the trust or the contract terms if you will. That might mean distributing additional assets to you or for your benefit, for example, for your healthcare, wherever you're going to live to pay your bills, that sort of thing, or after you pass away to distribute assets then to your heirs or to your spouse.

The benefits of a revocable trust are that it is very seamless in its management. It does not require any kind of a court oversight. Typically, either if you pass away or if you are incapacitated, you're going to need a probate court to oversee the management of your finances. That is what the law says in each state. But with a revocable trust, you can do that very privately and without the oversight of the court. So a lot of people use that for that continuity of management, the ease of management, and the privacy that goes along with that.

Oscarlyn Elder:

And how does the revocable trust connect to longevity planning and the potential for extended care?

Jacqueline Parks:

Because of the seamlessness of management and the privacy element, many people will use the revocable trust as a central vehicle to manage all of their assets. And so during their lifetime when they create that trust, transfer the vast majority of their assets into the trust and keep everything managed and centralized in one place. Anything that is not a trust asset, if you are incapacitated, then you're going to use that power of attorney to control what happens to that asset. So, some things are not in the trust, think your IRA account is not going to be in the trust. Your 401(k) is not going to be in the trust. So those things, you still need to have the power of attorney to make decisions, move assets, do things with it.

Oscarlyn Elder:

We've talked about the durable power of attorney, we've talked about the revocable trust, we've talked about the healthcare directive. How are these documents created?

Jacqueline Parks:

The best advice that I can give everyone listening is that you would engage an attorney who is an estate planning attorney to help you get these documents drafted and signed correctly. Sometimes we do see folks trying to go online. Many of the power of attorney and healthcare directive forms are available with each state, but because of the need to also coordinate this with your will and with your revocable trust and signing a HIPAA authorization, as well, getting an attorney engaged is well worth your time and it will have some costs.

But it is well worth the cost to get the advice of the attorney and make sure that the documents, number one, they are coordinated with each other, and number two, that they are executed correctly.

Oscarlyn Elder:

Thank you for helping folks understand where they need to go to actually complete these really important documents and to get organized from a legal perspective. So, there's some complexity here. As we look forward, what strikes me is that we can't just set it and forget it. Once we've got these documents in order, it's really important that we revisit on a fairly regular basis. What's your suggestion for how folks should think about that?

Tony Bryan:

Oscarlyn, you're absolutely correct. In my opinion, this is the hardest part of the process because every so often it's going to take some time and energy to not only organize and keep safe all these documents, but you also have to keep up with the individuals who you appointed to the various roles to make sure nothing has changed. And it may seem like a daunting task because it is a daunting task. This type of planning, it's not going to be easy.

We've not said that not one time during the podcast, but I promise you this, it will be worth it. And once this planning is done, it should allow you to relax in a place you probably have not been able to relax before. And so, I can't think of very many ways to say, “I love you” to your family than doing this planning.

Oscarlyn Elder:

Tony, I agree with you. This is an incredible way to say, “I love you” to your family. To get organized, to engage the appropriate estate planning attorney, to engage your advisor team to set up these important documents and to engage in the financial planning, and then to ensure that this information stays fresh, that it doesn't get outdated. That is an incredible ongoing “I love you” to your family. So thank you for those words.

And Jacqueline and Tony, we're going to come right back to wrap this up and suggest some action items in a moment.

Jacqueline, we've given people a long to-do list when it comes to longevity planning and healthcare. How can you and the rest of the team at Truist help people get started?

Jacqueline Parks:

We always start with listening. It begins with a conversation. No forms, no pressure, just a chance to understand what matters most to you. Once we know your values, goals, and concerns, we can help you prioritize the next steps and build a plan that protects your dignity, honors your preferences, and supports the people who may need to step in and help.

Oscarlyn Elder:

Thank you so much for that. And Tony, I've got one more question for you. As you know, we have a tradition of asking our guests what's the one thing that they've been meaning to do that they haven't done yet and that they're willing to commit to do now in front of our entire audience? I've asked you this before and I asked Jacqueline that question during our last conversation. Now it's your turn again. What comes to mind for you?

Tony Bryan:

Well, the last time I was on, I was committed to eating healthier because I do eat like a 10-year-old kid. I love fast food. I love donuts, cookies, candy, cake. And sadly, I can admit to everybody that that did not happen. So, I have recommitted myself to eating healthier now just because every day seems like a struggle for me. I'm sluggish and I know it's my diet because I do exercise. My diet is just so bad. So, I have been eating healthier for the past couple of weeks. I've started to feel a little bit better, so I hope to report back to you in a couple of months where I'm going to have, I like to say, a marginally positive report for you.

Oscarlyn Elder:

Well, Tony, thank you for being vulnerable and sharing that with us. I remember your first “I've been meaning to do that,” and I'm really encouraged that you've made some changes and you're already seeing some improvement.

Tony Bryan:

Absolutely. Thank you.

Oscarlyn Elder:

Jacqueline and Tony, thank you so much for joining me today. Longevity planning is something we all need to think about at some point for ourselves or a loved one. And it's been so helpful to hear from you.

Jacqueline Parks:

It's been a pleasure. Thank you.

Tony Bryan:

Thanks for having me.

Oscarlyn Elder:

Just a reminder that if this is a topic of interest to you, you can find other episodes about longevity planning at truist.com/dothat, and on so many other topics as well. I want to thank you for listening today, and if you liked this episode, please be sure to subscribe, rate and review the podcast and tell friends and family about it. If you have a question for me or suggestion for this podcast, email me at dothat@truist.com. I'll be back soon for another episode of I've Been Meaning to Do That, the podcast that gets you moving toward fulfilling your purpose and achieving your financial goals. Talk to you soon.

Speaker 4:

Oscarlyn Elder is an investment advisor representative Truist Advisory Services Inc. Any comments or references to taxes herein are informational only. Truist and its representatives do not provide tax or legal advice. You should consult your individual tax or legal professional before taking any action that may have tax or legal consequences.