Will End-of-Life Expenses Eat Up Your Estate?

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Will End-of-Life Expenses Eat Up Your Estate?
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For aging baby boomers, long-term care and home health care are huge concerns, and these concerns form the last part in a series of articles covering what I call the "six circles of wealth." These six circles break down your personal finance and wealth creation efforts. The goal is to have all of the circles spin at the same time, creating synergy and powerful momentum for your money.

Very few of my clients have all the circles covered, which means your wealth will take longer to grow and be open to much more risk than is necessary. So far, I have covered the first four: income and cash flow, investments, guaranteed income and cash and liquidity. This article discusses the last two: long-term care and your estate.

The only circle that can cannibalize the others is long-term care. It is also the circle that is most neglected, and most people's plan for dealing with it is hope and prayer. Most people say "I won't get that bad where I need a facility or a nurse to come in and help me" or "my family will help me with all of my needs" and even "if I get that bad, just pull the plug or shoot me and put me out of my misery." Do any of these sound familiar?

Long-term care facilities average $7,200 a month, and according to Genworth Financial, costs are increasing more than 4 percent a year. How long could your nest egg last paying out more than $80,000 per year in today's dollars? Many people might consider buying a long-term care insurance policy. The American Association of Long-Term Care Insurance says a policy for a 55-year-old costs $723 to $1,590 a year, depending upon benefits -- and these figures are from 2009. As with most insurance, if you never need it, your family will not get your premiums back after you pass away.

Asset Reduction Via Estate Planning

One alternative is estate planning, which needs to be done with a quality legal firm that specializes in estate planning and elder law. There are ways to structure your estate that will lessen any blow that you might incur from the cost of long-term care. These usually involve getting rid of assets via gifts and trusts -- years before you need long-term care -- so when you have to sell off assets before Medicare kicks in its contribution for long-term care, you don't have many assets left to sell.

This type of planning is controversial because it is seen as pushing the tab on the government even if you have the ability to pay for yourself. So unless you were smart enough to have a quality life insurance product that you bought many years ago, you could be leave nothing behind for your family. Since the traditional financial world tells us to buy term insurance and not whole life, most people will stop paying for expensive term policies as they age because the cost becomes prohibitive. Thus when they are faced with long-term care issues, they must cannibalize their estate or reduce the estate before they have need long-term care. My job isn't to pass judgment but to pass along the information and let your conscience be your guide.

Asset-Based Long-Term Care

Another alternative is to allocate some of your funds into products that are built to help you with the cost of long-term care. Asset-based long-term care might be as simple as putting some of your money inside of a properly structured annuity. Let's say you spend $150,000 on a long-term care annuity where you were credited with a 3-1 benefit ratio. Your $150,000 buys you $450,000 of long-term care protection if and when you need the coverage.

%VIRTUAL-article-sponsoredlinks%What if you never need the coverage and pass away at home in your bed? Then the $150,000 in that account will be part of your estate and given to your family, plus a small rate of growth. Maybe only 3 percent growth, but remember you are not doing this for growth. You have other circles of wealth that are concerned with growth and returns. This is a long-term care and estate planning strategy. You sleep well at night and maintain control of your cash, and if you never need the benefit, your family receives the money plus growth.

Whole Life Insurance

Many of our clients in their 40s, 50s and even into their 60s also set up a high-quality whole life insurance policy. This provides the estate guarantee they want for their kids and grandkids so if they need to sell off assets to pay for care, they still leave behind their legacy for their family.

One of my favorite books is by Harvey Mackay is called "Dig Your Well Before You're Thirsty." These words are even truer when dealing with long term care and your legacy.

John Jamieson is the best-selling author of "The Perpetual Wealth System." Check out his new Video of the Week.

10 Easy Ways to Pay Off Debt
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Will End-of-Life Expenses Eat Up Your Estate?
"Your daily habits and routines are the reason you got into this mess," writes Trent Hamm, founder of TheSimpleDollar.com. "Spend some time thinking about how you spend money each day, each week and each month." Do you really need your daily latte? Can you bring your lunch to work instead of buying it four times a week? Ask yourself: What can I change without sacrificing my lifestyle too much? 
Remove all credit cards from your wallet and leave them at home when you go shopping, advises WiseBread contributor Sabah Karimi. “Even if you earn cash back or other rewards with credit card purchases, stop spending with your credit cards until you have your finances under control,” she writes.
If you do a lot of online shopping at one retailer, you may have stored your credit card information on the site to make the checkout process easier. But that also makes it easier to charge items you don't need. So clear that information. "If you’re paying for a recurring service, use a debit card issued from a major credit card service linked to your checking account," Hamm writes.  
Reward yourself when you reach debt payoff goals. "The only way to completely pay off your credit card debt is to keep at it, and to do that, you must keep yourself motivated," Bakke writes. Just make sure to reward yourself within reason. For example, instead of a weeklong vacation, plan a weekend camping trip. "If you aim to reduce your credit card debt from $10,000 to $5,000 in two months," Bakke writes, "give yourself more than a pat on the back." 
“Establish a budget,” writes Money Crashers contributor David Bakke. “If you don't scale back your spending, you'll dig yourself into a deeper hole." You can use personal finance tools like Mint.com, or make your own Excel spreadsheet that includes your monthly income and expenses. Then scrutinize those budget categories to see where you can cut costs.    
Sort your credit card interest rates from highest to lowest, then tackle the card with the highest rate first. "By paying off the balance with the highest interest first, you increase your payment on the credit card with the highest annual percentage rate while continuing to make the minimum payment on the rest of your credit cards," writes Mint.com spokeswoman Hitha Prabhakar.
To make a dent in your debt, you need to pay more than the minimum balance on your credit card statements each month. "Paying the minimum -– usually 2 to 3 percent of the outstanding balance -– only prolongs a debt payoff strategy," Prabhakar writes. "Strengthen your commitment to pay everything off by making weekly, instead of monthly, payments." Or if your minimum payment is $100, try doubling it and paying off $200 or more. 
If you have a high-interest card with a balance that you’re confident you can pay off in a few months, Hamm recommends moving the debt to a card that offers a zero-interest balance transfer. "You’ll need to pay off the debt before the balance transfer expires, or else you’re often hit with a much higher interest rate," he warns. "If you do it carefully, you can save hundreds on interest this way."
Have any birthday gifts or old wedding presents collecting dust in your closet? Look for items you can sell on eBay or Craigslist. "Do some research to make sure you list these items at a fair and reasonable price," Karimi writes. “Take quality photos, and write an attention-grabbing headline and description to sell the item as quickly as possible." Any profits from sales should go toward your debt. 
If you receive a job bonus around the holidays or during the year, allocate that money toward your debt payoff plan. "Avoid the temptation to spend that bonus on a vacation or other luxury purchase," Karimi writes. It’s more important to fix your financial situation than own the latest designer bag.
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