Long-term care planning too often ignored

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In business, partners must protect themselves from the financial ramifications that a significant health or lifestyle change of a partner can have on the other.

To protect themselves, business owners form a “buy/sell agreement” as a kind of “insurance” against these events, which cannot only place a significant burden on one partner, but can cripple a company as well.

According to Wikipedia, a buy/sell agreement ” is a legally binding agreement between co-owners of a business that governs the situation if a co-owner dies or is otherwise forced to leave the business, or chooses to leave the business .”

I like to think of this type of agreement as a business continuation agreement. When one partner has either died or is unable to remain in the business, the value of the business and the financial well-being of the other partner is ensured.

Robert Wood, a contributor to Forbes magazine, writes that this kind of ” agreement can ward off infighting by family members, co-owners and spouses, keep the business afloat so its goodwill and customer base remain intact, and avoid liquidity problems. ”

Mike Padawer, who is a leading adviser in the area of long-term care planning, believes that ” if you take a simplistic view of the relationship of couples, it’s actually very similar to the relationship between partners in a business. In a business relationship, there are financial ramifications on one partner in the event of death, incapacitation, divorce, bankruptcy or retirement; and this is precisely why smart business partners implement a “buy/sell agreement.””

Recently, Fidelity Investments released their annual report on health care expenses in retirement, and concluded that the average couple (age 65) will need to spend approximately $240,000 on out-of-pocket healthcare expenses during their retirement years. However, that figures does NOT include potential long-term care (LTC) expenses in their calculations. Given the fact that nearly 70% of all retirees will require some form of LTC services during retirement, the need for Long-Term Care planning becomes evident when you consider its impact upon a family and their wealth.

Mr. Padawer points out that ” when discussing potential LTC needs, it’s very important to understand how and where care can and will be provided. LTC services range from basic care in the home to full-scale medical care in a nursing home. The majority of LTC services provide assistance with “Activities of Daily Living” (ADL), such as dressing, bathing, eating, transferring, and toileting. Those who have difficulty performing two or more of the ADLs, due to physical limitations, severe cognitive impairment, or both, are generally considered to be in need of LTC services. ”

He advises his clients that planning for long term care will protect the well being, both financially and physically, of both partners, and he also sees this type of planning as protecting the ongoing “continuation” of the family’s finances, in much the same way that a buy/sell agreement functions as a business continuation agreement for business partners.

Regardless of whether you view it as a “couple’s buy/sell agreement,” or simply long-term care planning, it should be done as early as possible and become a component of one’s financial and retirement planning.

The mistake that we often make with long-term care planning is that we put it off as it’s an expense we don’t want to deal with. However, in much the same way as the hard work and dreams that owners put in their business can be derailed by not planning for physical calamities that can occur, the finances and dreams of a family can be impacted by not planning for similar physical calamities.

Mr. Padawer’s message is clear, ” Don’t make the mistake and put off planning until it’s too late. As you, your loved ones or your clients prepare for the future, proper planning today for an uncertain tomorrow can help ensure a secure retirement and long-term financial goals. “

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