As senior loved ones age, many families face challenging decisions regarding care. Frequently, these decisions involve both estate planning and long-term care. This article is meant to provide a basic framework of knowledge to prepare for some of the more difficult estate planning challenges that occur in conjunction with a senior’s need for long-term care.
Long-term care and estate planning are necessary for senior citizens who wish to age and pass as comfortably as possible, while minimizing the negative impact of their passing on their families. Well-planned long-term care removes the burden of caregiving from relatives and ensures seniors get the best services available to them. Estate planning specifies a senior’s orders for asset management after they pass away. The secret to bridging long-term care with estate planning is understanding how one can inevitably determine the success of the other.
With each type of planning, there are risks involved. Without a long-term care plan, seniors with serious health problems and limitations may not get adequate assistance, or even be able to afford it. Without estate planning, potential for conflicts of interest can tear estates and families apart. There is one particular risk that actually serves as the link between long-term care and estate planning:
Seniors can potentially risk significant estate shrinkage to cover the expensive cost of long-term care.
Historically, asset preservation through estate planning has been used by the wealthy to protect large estates from business failures, lawsuits and taxes. However, estate planning has also become tremendously helpful to typical middle-class senior citizens who need to protect their life savings and property from the potentially devastating costs of long-term care. The cost of long-term care is rising exponentially and with recent developments, government aid for its coverage may diminish. Whether you are a wealthy or middle-class senior citizen, the last thing you want is for your estate to dwindle after covering long-term care.
Preventing the risk of estate shrinkage due to long-term care costs is possible through planning. Long-term care planning is usually initiated during and after a senior’s health crisis. After undergoing treatment at a hospital, seniors are discharged and left to manage the rest of their recovery on their own or with the help of family, outpatient services and advisors. Face the unknown after discharge with confidence after reading this blog, and secure your long-term care plans early.
Estate planning should also be made early and factor in consideration of long-term care costs. The main objective of estate planning is to assure that your property passes the way you want it to at your death. Some adults plan their estates as soon as they have spouses and children, who they typically designate as beneficiaries.
Why should senior citizens make their estate plans?
When seniors are planning an estate working across generational lines, there is a large potential for conflicts of interest and confusion to occur before and after death.
As many as 64% of Americans don’t have a will. This means there is nothing in place to ensure where an individual’s assets will be distributed or who will receive them. Without a will, courts will make decisions on estate distribution according to the state’s probate laws. This is frequently inconsistent with the benefactor’s wishes or the needs of the family they leave behind.
Wills are just part of the several pieces of estate planning that seniors should address.
Below are common documents used in the estate planning process:
Last Will and Testament – This document outlines who receives your assets after your death. The probate court in the county where you live ensures that property passes according to the way of your will. A will is important if you have children. You can spell out how your assets will be distributed among them, and your say governs above any squabbles they might have about it.
Living Will – This document allows seniors to control decisions related to their own medical care. In the event of a terminal medical condition or cognitive decline, a living will determines how you are treated when you are not able to dictate it yourself. Living wills are also known as medical directives. One specification you can make in a living will or medical directive is whether or not to discontinue medical treatment in the case of an incurable and irreversible condition that only prolongs the dying process.
Durable Power of Attorney – When you need someone to trust with the task of managing your business affairs if you become unable to take care of them yourself because of cognitive decline or illness, this document appoints the role to the person of your preference. It doesn’t replace you as a decision maker but allows someone else to act for you in case you become incapacitated. This designated person can help you manage either property or healthcare according to your wishes.
Trusts – These are types of trusts you can use to finalize estate plans:
- Revocable Living Trusts – While you are alive, and if you succumb to old age or disability, you can act as your own trustee and use a revocable living trust to appoint successors. You can also appoint a corporate trustee, like a bank to handle your assets.
- Irrevocable Trusts – These trusts can be used for benefit planning to preserve assets from estate taxes.
- Life Insurance Trusts / Charitable Remainder Annuity Trusts – This type of trust will build wealth for a family and save estate taxes.
Care Contracts – These documents legally transfer assets to a relative for providing care to a senior. They spell out the way payment is calculated and what services will be provided. If you have a family caregiver providing long-term care for a senior loved one, care contracts can ensure that they are compensated for it.
Life Care Plan – Well-trusted professionals like elder attorneys and geriatric care managers are involved in life care plans as advocates for the senior. They help develop comprehensive planning that fulfills the senior’s health and legal needs. A senior receiving long-term care in-home, in assisted living or a nursing home will constantly have the support of their family, attorney and geriatric care manager behind them because of a life care plan.
Like long-term care planning, getting your plans in order before – not during – a medical crisis is the best way to maintain your peace of mind. Seniors and families who are able to plan ahead of time are ready to react appropriately if any unexpected complications arise. Estate planning is like long-term care planning because there are no one-size-fits-all solutions, but solutions are necessary before problems escalate. These are problems that can challenge you during and after estate planning:
- Overlooking estate shrinkage – Under a false sense of security, it may appear that your senior loved one’s assets can cover the cost of long-term care, funeral costs, estate taxes and debt. But given the monumental cost of long-term care, which can reach hundreds of thousands of dollars over just a few years, some seniors may not have enough in their estate to cover everything. Once they pass away, this leaves their families to take on the burden of managing money and paying bills. Run the numbers accurately while you plan your estate, and use the advice of elder attorneys or financial advisors you can trust.
- Failing to update a will – If you have taken the initiative to put a will in place, it needs to be updated periodically. When changes occur in your lifetime, such as buying a home, getting married, the birth or marriage of new family members, getting divorced and getting remarried, needs must be accurately reflected in an updated will. Try to review your will every two years.
- Naming incapable heirs – In the case of naming a young child as an heir, for example, you might have chosen a beneficiary who is incapable of understanding what they receive from your estate planning. Moreover, they might be a person who does not understand financial matters or be irresponsible with money. To prevent an incapable estate beneficiary from losing their assets, you can appoint a professional to supervise them.
- Fraud – Especially in old age, trustees are susceptible to fraud committed by the numerous people they may depend on for estate planning. There are countless reports of family members, attorneys or financial advisors taking advantage of seniors’ health inhibitions and limited cognitive ability to rob them of their life savings and other assets. Watch out for thieves who target seniors, and only trust information about your estate to people who are completely credible to you and your family.
- Lawsuits – In the long-term care industry, it is possible for devastating lawsuits to be made against seniors. There can be risk of injury involved in a senior’s long-term care in-home with a caregiver or in a senior facility. A caregiver in California was injured when her client, an elderly woman with Alzheimers, made her fall and get cut by a knife. This caregiver sued her client for workplace injuries inflicted. Unless the long-term care professionals helping you are covered by liability insurance, like Amada Senior Care has for all of its caregivers, you may risk facing a troublesome lawsuit like this.
Protecting yourself and your family with estate planning that includes your long-term care plans is an achievable goal. Take initiative to plan early, and monitor your documents responsibly to avoid problems that may arise during and after your planning.
“Bridging Long-Term Care with Estate Planning: The Basics,” by Michelle Mendoza, Amada Blog contributor.