BERLIN – Few families talk about senior care, let alone plan for it ahead of time. Unlike buying a house, paying for college or even saving for retirement, senior care is a subject that leaves many families feeling anxious and uncomfortable.
Yet people are concerned about how they are going to care for aging parent or relatives. In our latest annual retirement and financial planning survey, we found that Americans are increasingly concerned about their ability to care for aging parents.
If you leave the planning of senior care until the last minute, when care is urgently needed, it is often too late to plan wisely. As a result, your medical and financial options may be severely limited.
It’s impossible to predict how much care family members may eventually need, but you can be sure costs will rise. Inflation-adjusted spending for long-term care for the elderly will grow by 2.6 percent a year between 2000 and 2040, the Congressional Budget Office estimates. At that rate, costs could reach $207 billion in 2020 and $346 billion in 2040.
It is important to incorporate senior care issues into your financial planning strategy from the start. You wouldn’t wait until you were 60 to start planning for retirement, so don’t allow family members to wait that long to start planning for senior care.
It’s in your best interest to assure that both you and the elderly members of your family are prepared for the financial and physical challenges that may be ahead. In this country, 80 percent of all care giving is provided by family members, according to a survey conducted by the national newspaper USA Today. The average age of a caregiver is 50 — a time when many people are already coping with the challenges of caring for their own children and preparing for the financial challenges of higher education.
As the first part of an estate plan, family members need to arrange their financial affairs. Make sure every member of your family has a will and that it is updated as financial and life circumstances change. A will allows you to distribute all assets not controlled by survivorship provisions and beneficiary designations.
In addition, living wills can ensure that family members are cared for according to their wishes. A living will specifies the type of medical care a person would want if they became ill and were unable to communicate his or her wishes. A health care power of attorney or health care proxy designates a family member to make health care decisions.
For many people, long-term care insurance can help cover the costs of senior care. Traditionally, long-term health care insurance has provided two broad types of coverage: care in a nursing home or care in one’s own home. Newer policies now cover care at assisted living facilities and adult day care centers
Long-term health care insurance is not for everyone, particularly those who have a modest income and limited assets. Premiums for long-term care insurance are based on your age at the time of purchase and amount of coverage. Today, companies routinely offer policies for individuals as young as 40.
Depending on the size of an elderly family member’s estate, there are a number of estate-planning arrangements that can be put into place before a crisis arises to ensure that assets are handled in the way the person would want.
A senior’s assets often are widely scattered, making financial management difficult. As a person’s health deteriorates, it becomes harder to spend the necessary time on finances, which may impact a family’s ability to make wise decisions. A family may need assistance in managing the assets of its senior members.
One way to do this is a revocable living trust, which can simplify financial management through consolidation of assets. The grantor can name himself or herself as trustee, or choose an outside party to handle the decision-making and administrative detail.
Although these arrangements do not create any tax savings, revocable living trusts do simplify the transition to a new trustee, if and when necessary. Revocable trusts also avoid probate, which can reduce the cost and delays of settling an estate.
Another option is a charitable remainder trust. This can be a good choice for a senior who wants to make a significant gift to a favorite charity as well as provide income for him or herself. The grantor receives income from the trust for a specified term, up to life.
These trusts often are funded with highly appreciated assets such as stock or real estate held longer than one year. The grantor receives an income tax deduction equal to the value of the charity’s remainder interest based on the fair market value of the contributed assets, and the sale of assets in the trust is not subject to current capital gains taxation.
Preparing to meet the physical and medical needs of family members is a complex task. You want to provide fully for the physical, emotional, social and financial needs of those you love. Talk with your team of advisors — your financial consultant, lawyer, and accountant — to see how you can best accomplish this goal.
(The writer is a Merrill Lynch Senior Financial Advisor. She can be reached at 410-213-9084.)