Creating a Formal Plan for Long-Term Care
Have you had the talk? If you are an adult child, the talk is sitting down with your parents. When you have the talk with your parents about their options for long-term care, it's important to discuss where they are going to age. In a perfect world, they will age in their own homes. Sometimes this is not possible for a variety of reasons. And no matter where they are going to live, determining who is going to care for them there should be part of the conversation.
If you are retired or contemplating retirement, and your adult children have not talked to you about this, consider bringing it up yourself. Invite your children to have the talk with you. While they may not want to, you can remind them if you don't have this discussion now, it will be much harder later.
A conversation about long-term care should serve two primary questions: where you plan on living in retirement and what happens when you get sick. It should also include a formal plan for long-term care. Including advisors like insurance, finance, tax and legal specialists in this conversation is important. The key is to communicate your wishes clearly, write them down and execute them as needed.
Can You Age Safely in Your Current Home?
This is where you need to take a long, hard look. You love your home. You love the neighborhood. But will your home love you back when you cannot move on your own? If you had to stay on one floor, could you? Will you be able to use the kitchen, bathroom, laundry, bedroom, etc. if you require the use of a walker or wheelchair? If the answers to all the above are yes (or will be yes after some minor improvements that don’t break the bank), congratulations. You can age in place.
If not, is it worth doing significant renovations, or should you sell and move? But where do you move? In with your kids, to an apartment, an independent living facility, another home? Each one of these options has its own pros and cons, and the costs are significantly different. You may find your monthly costs are significantly higher than your property and school taxes now, and other monthly costs. (For more from this author, see: Aging in Place or Downsizing? Be Prepared.)
Take Time to Review Your Estate Plan
If your will was last updated when your 45-year-old daughter was in diapers, it’s time to revisit what’s in there. While you are meeting with an attorney who can help you with this, you should also ask about powers of attorney for medical and financial concerns. Who will act on your behalf when you are not able to do so? Your 41-year-old son who cannot hold a job and tends to drop off the radar periodically may not be the best choice.
Due to recent tax law changes with respect to federal estate taxes, many Americans will no longer be subject to estate taxes. Although it is possible for you to have estate tax exposure on the state level. Those who did estate planning years back when the laws were different should seek legal advice ASAP.
Even if the estate tax is no longer a problem, you still want to make sure your assets go where you want them to after you are gone. I have seen some interesting issues pop up, and chances are a competent attorney can help you solve them. You want to protect your assets from estate erosion due to long-term care medical expenses. Certain attorneys specialize in this area, especially if Medicaid planning is appropriate. Certain financial advisors who specialize in this area will help you plan to use your existing assets. (For more from this author, see: Healthcare Costs in Retirement: What to Consider.)
Financial Considerations as You Age
How will you pay for your care, home modifications, long-term care, etc.? Will you use home equity? Liquidate assets? Utilize long-term care insurance? There is no perfect solution, but many are better than others. The takeaway here is to have a formal plan. Absent a formal plan for long-term care, all your assets are at risk. No one is going to help you pay for your care until you are out of money and qualify for social services.
There are tax implications here, too. Proper planning will help you keep the tax liability down, which is important. It’s not just income taxes. Too much taxable income can cause your Medicare premiums, Part B and Part D, to rise more than the base levels. That lowers your net Social Security retirement income.
While you are healthy and of sound judgement, can you can answer this question? If you need long-term care today, which one of your assets will be liquidated first? This is important, because many times that asset may be used more efficiently if you plan versus having to make a quick decision on liquidating it.
Don’t forget income planning. Rather than being forced into selling something, possibly at the wrong time, why not set up an income plan to help you when your expenses become greater? There are some guaranteed income options to help you plan for this. Income may start now or at some date in the future.
This is just a starting point. Some of what I mentioned may not work in your situation. Many solutions take some time to implement, and may depend on your health and other factors. But the most important lesson here, and I know I said it already, is to have a plan. As General George S. Patton, Jr. said many years ago, “A good plan today is better than a perfect one tomorrow.” (For more from this author, see: Plan With Elderly Parents for Future Care Needs.)
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.