Having an estate plan ensures that people have control over what happens to their assets when they pass away. However, asset distribution preferences is only one part of a comprehensive estate plan. Estate planning can also help people devise a clear outline of what is going to happen to them and their assets before they pass away. One prime example of this is planning for long-term care.

Why is Estate Planning Important When Considering Long-Term Care?

One of the biggest drains on assets for elderly people, especially in their later years, is long-term care expenses. In 2020, for example, statistics showed that about 70% of individuals age 65 will need long-term care before they pass away.  

The average stay in a long-term care facility is about 28 months.  The average cost per month of a long-term care stay is about $7,000-$12,000 every month, depending on the type of care a person needs.

To further illustrate, the national median costs for different types of long-term care in 2020 were as follows:

  • Adult daycare: $1,625
  • Assisted living facility: $4,051
  • Homemaker services: $4,290
  • Home health aide services: $4,385
  • Semi-private room accommodation in a nursing home: $7,513
  • Private room accommodation in a nursing home: $8,517

For most people, paying for long-term care out-of-pocket will drain a huge portion of their savings that they could otherwise pass on to their beneficiaries. So, without proper planning, a big portion of the savings that people have built up over many years is likely to be spent on long-term care expenses rather than passing on to children and loved ones. 

What Payment Options Are There For Long-Term Care Expenses?

Long-term care insurance is one option that is available to people looking to offset long-term care costs. However, it is not something that would make sense for every household. 

Long-term care insurance premiums depend on a variety of factors such as age, health, or the amount of coverage, but long-term care policies have generally become more expensive in recent years. Few people have deep enough pockets to afford long-term care insurance without dipping significantly into their asset pool. 

But, even if long-term care insurance is relatively affordable in a particular year, insurance prices have been known to be quite unpredictable, so what someone is paying for this year might get a significant increase next year.

Another option for people who cannot afford long-term care insurance is Medicaid. Not to be confused with Medicare, which doesn’t cover long-term care at all, Medicaid can help cover some long-term care expenses. However, it is not synonymous with long-term care insurance.

What Long-Term Care Expenses Can Medicaid Pay For?

As a primarily state-run program, the types of long-term care coverage that Medicaid can pay for largely varies from state to state. Generally speaking, however, Medicaid can cover custodial care expenses in all states. 

Custodial care is for people who cannot perform some or all of the activities of daily living—or ADL—without any assistance, such as:

  • Eating
  • Taking a bath
  • Getting Dressed
  • Going to—and using—the toilet
  • Continence
  • General mobility

To qualify for Medicaid, a person must be unable to perform 2 of the 6 ADLs listed above, along with meeting their state’s income and asset requirements. If qualified, Medicaid can then pay for the entire cost of a person’s nursing home care.

Estate Planning Can Make a Huge Difference in a Person’s Long-Term Care Expenses

Long-term care insurance and Medicaid are just two of the options available to people planning for long-term care expenses. There are other programs (both government and private) that can help pay for your long-term care needs.

Having an estate plan can help you determine the best strategy to prepare for potential long-term care costs in the future. Long-term care planning can save hundreds of thousands of dollars in assets, and can take a lot of financial pressure off of you and your heirs. 

Few individuals want to eventually live in a long-term care facility — but statistics show that 70% of people will live in a long-term care facility for at least some period of time. As a result, it’s important to plan in advance to make sure long-term care needs don’t deplete the assets you’ve worked so hard to accumulate during your life.

If you need help coming up with an estate plan that best suits your needs—whether that be for the purpose of preparing for long-term care or for specifying what happens to your assets after you pass away—give us a call and we will help walk you through the entire process.