Why Even the Wealthy Need Long-Term Care Insurance
The wealthy often hold their wealth in illiquid assets such as real estate or businesses. These assets aren't readily sold to cover care costs, which can lead to asset depletion. Despite their substantial resources, the wealthy must prepare for LTC care in their financial planning.
These individuals purchase LTCI to protect their wealth and assets for heirs or charitable organizations. This approach minimizes the financial impact of LTC, allowing them to maintain their standard of living and legacy plans.
- In-home care — Aides, visiting nurses, and physical therapy.
- Residential facilities — Assisted living, memory care, and nursing homes.
- Community services — Adult day care and short-term respite care
An ILIT requires careful structuring using an indemnity-style life insurance policy with an LTC rider. The trust cannot pay LTC expenses directly, or it risks being considered a retained interest, which would pull the trust's assets back into the taxpayer's taxable estate.
Due to the complexity of an ILIT strategy, individuals must consult with financial, insurance, legal, and tax professionals before implementing. An ILIT method may provide for more strategic, tax-efficient planning for some, or not be appropriate for others.
How an ILIT Strategy Works
In an ILIT strategy, the grantor makes gifts to the ILIT, which then utilizes these funds to pay the life insurance premiums. Upon death, the death benefit is paid to the trust, not the estate. As a result, the proceeds are not included in the estate's valuation for tax purposes. There are both benefits and challenges to an ILIT strategy.
- Asset protection—By transferring assets into an ILIT, they are protected from creditors, which could be costly if LTC starts to drain assets.
- Tax benefits—The assets, including the death benefit, in an ILIT are not part of one's taxable estate. ILITs can help reduce estate taxes, thus preserving more wealth for heirs.
- Control—Even though the trust is irrevocable, one can dictate how and when the assets are distributed to beneficiaries.
However, ILITs are not without challenges.
- Tax issues—Transferring an existing policy to an ILIT may lead to a three-year look-back period for estate tax purposes.
- Careful planning and administration— Individuals must seek guidance from financial, legal, and tax professionals to navigate the complexities of this estate-planning strategy. ILITs are not for everyone.
On the other hand, LTCI provides a buffer for protecting wealth. It's crucial to consider premium costs, potential tax benefits, and individual health and age when deciding between private pay and LTCI.
Planning for LTC at higher income levels requires strategic planning. Whether through LTCI, trusts, or a blend of both, wealthy individuals have options when planning their care in their later years.
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Last week’s 2Q26 GDP report showed annualized real growth of 1.5% in 2Q26, down from 1Q26’s pace of 2.1%. While consumer spending stayed elevated and business fixed investment remained strong amid the AI capex buildout, a few key areas led to the weaker print. In particular, a 11.5% q/q jump in imports, 89.4 million barrels of oil released from the Strategic Petroleum Reserve (which is counted as reduced government spending) and a $50.8bn annualized fall in private inventories all cut reported growth. However, all these factors should be temporary. The surge in imports could reflect an attempt by businesses to import goods after the IEEPA tariffs were declared illegal and before they could be fully replaced. The U.S. has reduced oil stockpiles sharply to cushion the impact of the Iran war on consumers but with the SPR now at its lowest level since 1983, this drawdown will have to end soon. Additionally, private sector inventories can’t keep falling this fast.
2Q26 marked the fifth consecutive quarter of declining private inventories. However, as shown in this week’s chart, these stockpiles are now at very lean levels. Indeed, the inventory/sales ratio (measured as the number of days it would take to clear the shelves) has now fallen to 67.9 days, lower than at the trough of each of the last three recessions. We don’t see a recession around the corner and, consequently, expect inventory growth to return to its average pace over the last 10 years of $41.9bn. If that had occurred in the second quarter, economic growth would have been 3.06% – twice the actual reported rate. This, along with the other distortions, suggests the economy is stronger than implied by headline GDP growth and should continue to expand steadily in the quarters ahead, providing further support to risk assets.
Chart of the Week: Source: BEA, J.P. Morgan Asset Management.
Thought of the Week: Source: BEA, J.P. Morgan Asset Management.
Abbreviations: Cons. Sent.: University of Michigan Consumer Sentiment Index; CPI: Consumer Price Index; EIA: Energy Information Agency; FHFA HPI: - Federal Housing Finance Authority House Price Index; FOMC: Federal Open Market Committee; GDP: gross domestic product; HPI: Home Price Index; HMI: Housing Market Index; ISM Mfg. Index: Institute for Supply Management Manufacturing Index; PCE: Personal consumption expenditures; Philly Fed Survey: Philadelphia Fed Business Outlook Survey; PMI: Purchasing Managers' Manufacturing Index; PPI: Producer Price Index; SAAR: Seasonally Adjusted Annual Rate
Index: Institute for Supply Management Manufacturing Index; PCE: Personal consumption expenditures; Philly Fed Survey: Philadelphia Fed Business Outlook Survey; PMI: Purchasing Managers' Manufacturing Index; PPI: Producer Price Index; SAAR: Seasonally
Adjusted Annual Rate
MSCI EAFE is a Morgan Stanley Capital International Index that is designed to measure the performance of the developed stock markets of Europe, Australasia, and the Far East.
Bond Returns: All returns represent total return. Index: Bloomberg US Aggregate; provided by: Bloomberg Capital. Index: Bloomberg Investment Grade Credit; provided by: Bloomberg Capital. Index: Bloomberg Municipal Bond 10 Yr; provided by: Blomberg Capital. Index: Bloomberg Capital High Yield Index; provided by: Bloomberg Capital.
Key Interest Rates: 2 Year Treasury, FactSet; 10 Year Treasury, FactSet; 30 Year Treasury, FactSet; 10 Year German Bund, FactSet. 3 Month LIBOR, British Bankers’ Association; 3 Month EURIBOR, European Banking Federation; 6 Month CD, Federal Reserve; 30 Year Mortgage, Mortgage Bankers Association (MBA); Prime Rate: Federal Reserve.
Commodities: Gold, FactSet; Crude Oil (WTI), FactSet; Gasoline, FactSet; Natural Gas, FactSet; Silver, FactSet; Copper, FactSet; Corn, FactSet. Bloomberg Commodity Index (BBG Idx), Bloomberg Finance L.P.
information from FactSet's Pricing database as provided by MSCI. Russell 1000 Value Index,
Style Returns: Style box returns based on Russell Indexes with the exception of the Large-Cap Blend box, which reflects the S&P 500 Index. All values are cumulative total return for stated period including the reinvestment of dividends. The Index used from L to R,
top to bottom are: Russell 1000 Value Index (Measures the performance of those Russell 1000 companies with lower price-to book ratios and lower forecasted growth values), S&P 500 Index (Index represents the 500 Large Cap portion of the stock market, and
is comprised of 500 stocks as selected by the S&P Index Committee), Russell 1000 Growth Index (Measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values), Russell Mid Cap Value Index (Measures
the performance of those Russell Mid Cap companies with lower price-to-book ratios and lower forecasted growth values), Russell Mid Cap Index (The Russell Midcap Index includes the smallest 800 securities in the Russell 1000), Russell Mid Cap Growth Index (Measures the performance of those Russell Mid Cap companies with higher price-to-book ratios and higher forecasted growth values), Russell 2000 Value Index (Measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values), Russell 2000 Index (The Russell 2000 includes the smallest 2000 securities in the Russell 3000), Russell 2000 Growth Index (Measures the performance of those Russell
2000 companies with higher price-to-book ratios and higher forecasted growth values).
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