Check a few things, even if it is the ‘perfect’ plan

Dear Michael: We have set up our farm estate plan well. Our son farms and we have set aside money for our non-farming children to offset what he will be getting. We also carry long-term care insurance so no one should have to pay for that. We are in our late 50s and feel we have done an excellent job with our transition plans. Will anything occur in the upcoming tax bill that will upset the apple cart? – Bountiful Apple Cart

Dear Bountiful: It sounds like you have things put together very neatly. If I were to give you a check-up though, it might go along these lines.

Do you have the funds for your other children protected in any way from either estate, income, or probate fees? Do you know, most heirs experience a 25-35% reduction in their inheritance? Primarily, because of poorly held assets, a rapid downturn in the stock market or a long-term care cost higher than you had anticipated?

All your life you have built and built and built. When you hit 60 or so, it is time to a) enjoy the fruits of your labor and b) protect, protect, protect.

If you are doing things right, you should have enough money to live your life the way you would like to – even if that means sitting on a tractor during planting and harvest seasons. Or you might have other plans. One of my clients bought a '56 Chevy Bel-Air 2-door – wonderful! An asset that will be fun while you are alive and worth more by the time you pass away.

A retiring couple should look at all the income and assets they will have coming in and compare it to their living expenses. If you are earning enough money to continue putting into savings, and/or feel your savings will never need to be touched for retirement, take some of this money and sock it away somewhere where it can never be touched by income taxes, estate taxes, long-term care costs, etc.

This would be using some type of irrevocable trust to set aside "extra" dollars. You can leverage those extra dollars by investing in life insurance. Now that these policies will average 5-6% growth, they certainly are not the same old life insurance policies your parents knew. IRS has allowed larger contributions lately to life insurance policies making them a solid investment again. If you live long enough, your kids can receive tax free income. If you do not, they will receive tax-free death benefits.

Secondly, everyone comes to me and says "Oh, I've got long-term care insurance!" but just having a policy is not the total answer. The question must be, "Do you have $400- to $500,000 in your policy for each of you for long-term care costs?'

The number is right around $440,000 for average lifetime long-term care costs. If you are not insured for this amount, then you are under-insured. It would be like carrying $100,000 of insurance on a $250,000 house!

The other thing you will note is your house insurance, your farm insurance, and your health insurance all have safety factors built in for inflation. Do you know the average inflation factor on homes is about 2% yet long-term care costs have gone up an average of seven to nine percent a year? Your home insurance rises in cost – and needs to in order to rebuild your home if disaster strikes.

However, most long-term care insurance has either inflation or a three percent inflation rider. Commonly people have $200 or less per day for long-term care coverage and that is about 50% of what it should be. Where is the extra cost of care going to come from?

You are only in your 50s and studies show the average lifetime costs of long-term care in 30 years is going to be approaching $800,000. It seems like a lot, but I remember a lot of people used to have a $100 per day policy and now, that will not even cover the least expensive long-term care or assisted living.

You may have your "apple cart" full to the brim, and you may think you have done everything possible to grow them – and you have. But now it is time to worry about the apples you have in hand and how you are going to protect them. A little less focus on growth and a lot more focus on protection and you will reach your 80s without worry.

Check with a qualified estate planner if you want a quick check-up – even if you think you have the "perfect" plan.