Most people know that there will come a day when they can no longer remain in their home on their own, but it’s not a pleasant thing to think about! As a result, they do little to prepare for this reality.
Financial planning for long-term care should be top of mind as you age to protect your financial legacy, your beneficiaries, and your own best interests. The sooner, the better to start thinking through what you need to put in place.
This guide will walk you through the various documents and legal strategies that will enable you to make solid decisions for your future.
Financial Planning for Long-Term Care
Unfortunately, there are no simple one-size-fits-all solutions that are right for every person. Based on your unique needs and financial situation, you could have access to a variety of resources that allow you to fund your healthcare costs. From Medicaid to private insurance, here is what to know about the cost of your medical care.
Medicaid and Medicare
Medicaid and Medicare might sound similar, but there are some major differences between the two programs when it comes to addressing long-term care.
Medicaid is funded by the state and federal government, with more resources for long-term care options. However, not everyone will qualify because it comes with asset limits and stricter income requirements.
Medicare is slightly different, being funded solely by the federal government. It has fewer options when it comes to long-term care. Instead, it defaults to shorter stints in skilled nursing facilities or rehab centers. Unlike Medicaid’s income requirements, Medicare is available to anyone over age 65 who has paid Medicare taxes for a given period.
Neither Medicare nor Medicaid is a good plan for long-term care expenses.
Health Savings Account (HSA)
A Health Savings Account is another core strategy to help you prepare for future costs when it comes to long-term care. An HSA is available for anyone on a high-deductible health insurance plan. It functions as a savings account where you contribute tax-free funds. The money grows tax-free and can be withdrawn tax-free for any qualified medical expense.
Of course, there are some limitations to the massive benefits of this program. For 2025, you can contribute up to $4,300 for yourself and up to $8,550 for a family. There is an additional catch-up contribution of $1,000 for anyone over age 55.
Due to these limitations, it's unlikely that your HSA will contain enough money to pay for your entire care.
Private Insurance
If Medicare and Medicaid are not an option for you, then you may want to consider enrolling in some form of private insurance to assist with future long-term care needs. These plans often have fairly hefty premiums and are activated after you have paid in for a certain period of time, depending on the policy.
Getting long-term care insurance as soon as possible is generally best since it’s more affordable at a younger age, with costs skyrocketing in your golden years. There are many types of plans, and they all have some sort of maximum allowance, either determined by a daily limit or a monthly limit. This can make a huge difference in the actual care you receive.
Legal Planning for Long-Term Care
How you intend to pay for your long-term care is not the only aspect to think through. You must also take charge of legal matters, which you should consider as soon as possible.
Durable Power of Attorney (DPOA)
A Durable Power of Attorney (DPOA) is a legal document that gives someone else express permission to make financial and legal decisions on your behalf if you can no longer make those decisions yourself.
Take extra care in choosing who to trust with this responsibility. This is especially important to decide sooner rather than later, so you can have a frank conversation with them about how you would want decisions made while you’re in complete control of your mental faculties. Accidents or medical emergencies can happen at any time and hinder your ability to communicate clearly.
Healthcare or Medical Power of Attorney
Many people have someone else in mind whom they feel comfortable trusting to make medical decisions on their behalf. Oftentimes, it is best for a person not to have a conflict of interest, so you may want to name someone different for a healthcare or medical power of attorney than for your DPOA. This legal document allows someone else to make long-term care decisions when you are unable to communicate.
It is best to start having conversations with this person now so that they understand what you want done in specific scenarios regarding your long-term care planning.
Estate Planning and Asset Protection
While all of these steps might have you thinking about your long-term care, there is one more important puzzle piece to consider: your estate planning. Ensure that your assets and financial legacy end up in the right hands at the right time with these two strategies.
Wills
Many people already have an idea of how they want their assets distributed and managed in the event of their passing. A will enables you to pass on these directives to your beneficiaries, giving you one last moment to declare your final wishes.
An executor can help you manage the outcome of your will, but you will want to have this document legally drawn up to make sure your wishes are honored and binding.
It is part of your estate planning, but it is not the whole plan. A will won’t override your beneficiaries, for example, so it should be written up in conjunction with your overall larger plan.
There is also a living will that many people will draw up as they start to think through their long-term care options. This document outlines your preferences for care if you find yourself in a life-threatening situation. It takes the guesswork out of what you want and allows your loved ones to make the right decision for you without guilt or fear.
Trusts
An irrevocable trust can be a savvy way to protect and pass your assets to the next generation. The assets are divided up as you see fit, legally separating them from your estate. This allows your beneficiaries to avoid the probate process, gives them exactly what you wanted for them, and removes them from the purview of creditors and lawsuits.
A charitable remainder trust (CRT) can allow you to contribute assets right now and take a tax deduction for the current year. The trust then provides a regular source of income for your named beneficiaries for a set term or a lifetime, or a combination of both. The remainder, or a minimum of ten percent, will then be donated to the charity of your choice, cementing your financial legacy.
Be sure to work with a professional who can walk you through the financial benefits of laying out a comprehensive estate plan.
Start Planning Now with Magellan
Are you ready to start thinking about what the future may hold for you and your loved ones? We can help you keep all your estate planning under one roof with coordinated financial, tax, and legal expertise. Magellan helps you start thinking through your options for long-term care and making wise decisions that will protect your interests. Contact us today and let's start the conversation!
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.
This material provided by Kevin Meaders was written by Axle Eight, a non-affiliate of Magellan Planning Group and Cetera Advisors Network LLC.