When you begin the estate planning process, you probably aren’t thinking about yourself. Instead, much of this time is spent thinking about passing down your legacy to the next generation. But, before you finish your estate plan, it might be a good idea to consider thinking about long-term healthcare and the associated costs.
As healthcare costs continue to rise and Americans live longer, the likelihood of needing long-term care increases. Whether in-home assistance, assisted living, or nursing home care, these expenses can quickly deplete savings and undermine your financial legacy. That’s why integrating long-term care costs into your estate plan is essential.
If you are about to begin the estate planning process, keep reading to learn more about how to prepare for long-term care costs and why this is such a crucial step.
Why Long-Term Care Planning Matters
Long-term care (LTC) includes a variety of services that support individuals with chronic illnesses, disabilities, and other health conditions over an extended period. This care often goes beyond standard medical needs, encompassing assistance with daily activities such as bathing, dressing, and eating.
While Medicare may cover short-term rehabilitative care, it typically doesn’t cover long-term care costs. Failing to plan for these costs can jeopardize your estate and reduce what you can pass on to your beneficiaries. For example, the national average cost for a private room in a nursing home can exceed $100,000 per year.
Without a plan in place, many individuals are forced to spend their savings and liquidate assets to qualify for Medicaid. This can lead to unintended consequences, such as the loss of a long-time family home or reduced inheritance for loved ones. While this might seem trivial to some, it can make an already difficult experience even more emotionally taxing.
Including long-term care in your estate plan can preserve assets, maintain control over how and where you receive care, and avoid burdening your family with difficult decisions or unexpected financial strain. Even if you are in great health, planning for the unexpected can keep you and your loved ones safe.
Estimating Future Long-Term Care Costs
One of the most important steps in planning is attempting to understand what your potential long-term care costs will be. Several factors influence the potential costs, including:
- Location: Costs can vary widely depending on the state, with this care averaging between $35,000 and $135,000 in Northern Utah.
- Type of Care: In-home care costs less than a nursing home, but the overall cost will depend on the required level of assistance.
- Care Duration: The average length of LTC is about three years, and longer-term care can drastically increase the cost.
- Health Conditions: Chronic illnesses like dementia or Parkinson’s often require specialized, more expensive care.
When planning for long-term care costs, it is also important to consider factors like inflation. On average, LTC costs typically rise by 2-5% annually, which can significantly increase total expenses over time. When estimating, be conservative. Overestimating your needs is far safer than underestimating and risking financial hardship and your health.
Tools and Strategies to Pay for Long-Term Care
Once you’ve estimated your long-term care needs, you need to decide how to pay for them. Fortunately, there are several tools and strategies that you can build into your estate plan, making it much easier to pay for this care:
- LTC Insurance: This insurance covers expenses not covered by your health insurance, Medicaid, or Medicare. While premiums can be expensive, purchasing a policy at a younger age typically lowers costs.
- Hybrid Insurance Policies: These policies combine long-term care benefits with life insurance. If you need care, the policy pays out LTC benefits; if you don’t, your heirs receive a death benefit.
- Health Savings Accounts (HSAs): If you have a high-deductible health plan, contributing to an HSA is a tax-advantaged way to prepare. HSA funds can be used tax-free for qualified LTC services and premiums.
- Irrevocable Trusts: Irrevocable trusts can shield assets for Medicaid eligibility. Transferring assets into this trust removes them from your estate, potentially meeting Medicaid requirements after a five-year review.
- Medicaid Planning: Medicaid relies on strict income and asset limits, requiring proactive planning. An estate planning attorney can help structure finances to meet requirements and avoid disinheriting your family.
Working with an Estate Planning Attorney
Planning for long-term care costs is complex, and the laws governing Medicaid, trusts, and insurance can be difficult to navigate. That is why working with an experienced estate planning attorney is so important. When you work with an attorney, they can:
- Assess your current financial and health situation.
- Help you evaluate your best options for funding long-term care costs.
- Draft documents, including powers of attorney, healthcare directives, and living wills.
- Set up trusts or other legal structures to protect your assets.
- Keep your plan updated as laws and circumstances change.
They can also coordinate your LTC plan with other elements of other elements of your estate plan to ensure all aspects work in harmony. For example, naming the right trustees to manage your affairs, ensuring beneficiaries are aligned across insurance and estate documents, and making adjustments if your care preferences or financial situation shift.
Helping You Plan for Your Future
Preparing for long-term care costs isn’t just a financial decision; it’s vital to preserving your dignity, autonomy, and legacy. By addressing long-term care costs now, you can protect your assets, avoid placing stress on loved ones, and maintain control over your future. Whether you’re approaching retirement or helping an aging parent prepare, now’s the time to start.
If you’re unsure where to begin, turn to an experienced estate planning attorney, like our team at Bishop Estate Law, for support. Our team understands the complexities of long-term care and does everything possible to help you prepare for these costs. With our support, you can build a plan that ensures your wishes are honored and your family is supported.
If you’d like to learn more about our estate planning experience and how we can help you navigate long-term care costs, contact us today.