Why Long-Term Care Planning Matters to Your Client's Financial and Estate Plan
An effective plan for the future goes far beyond controlling and directing asset transfers at
death. When structured properly, an estate plan also protects against incapacity during life,
ensuring that a client's medical and financial affairs can be managed without court intervention.
But one risk that many estate plans overlook is the potential need for long-term care
(LTC). Long-term care is not a hypothetical risk; it is a predictable financial challenge that can
upend a carefully crafted estate plan, drain savings, and place immense strain on families.
Unfortunately, clients often assume that they will not need care, and advisors frequently delay
planning until a health crisis strikes. Treating the need for long-term care solely as an unlikely
health risk rather than a predictable financial and estate planning vulnerability leaves plans
dangerously exposed, potentially compromising assets and long-term objectives, even if the
client regains their health.
Understanding Long-Term Care
To appreciate the risk that long-term care poses to an estate plan, it is helpful to review a few
key considerations that may not have been fully addressed or considered with your clients.
What Is Long-Term Care?
Long-term care differs from standard incapacity planning because it is not necessarily tied to
catastrophic injury, terminal illness, or total cognitive or physical loss. Instead, LTC addresses
functional dependency and the inability to perform basic activities of daily living (ADLs),
including bathing, dressing, and moving safely from place to place. It typically encompasses the
following types of care:
- In-home care
- Assisted living
- Memory care
- Skilled nursing facilities
The National Institute on Aging defines LTC as services designed to meet a person's health or
personal care needs when they can no longer independently perform everyday tasks.1
Unlike short-term rehabilitation, LTC is generally custodial, focused on sustained assistance that
may last months or years.
That distinction has important financial implications: Medicare generally does not cover
long-term custodial care.2 While it may pay for limited, short-term skilled nursing or
rehabilitation following hospitalization, ongoing support for ADLs typically falls to clients, their
families, or private insurance.
Who Typically Needs Long-Term Care?
According to the National Institutes of Health, the need for LTC can arise suddenly, such as
after a heart attack or stroke, but more often develops gradually with age.3 While the exact
timing and level of care that will be needed are difficult to precisely predict, the following
underlying causes are relatively common and generally more foreseeable:
- Age-related frailty and declining mobility
- Cognitive impairment, including Alzheimer's disease or other forms of dementia
- Stroke and neurological conditions such as Parkinson's disease
- Chronic illnesses such as diabetes or heart disease
- Injuries resulting in long-term functional limitations
As life expectancy increases, so does the likelihood of requiring care.
The U.S. Department of Health and Human Services estimates that nearly 70 percent of
individuals turning age 65 today will need some form of long-term care during their
remaining years.4
Women are more likely to require care for longer periods due to longer life expectancy - a factor
that has implications for retirement and estate planning.
How Long Does Long-Term Care Normally Last?
Long-term care is not always permanent, but it is often prolonged. The average duration for
individuals needing care is approximately three years.5 However, averages can obscure the
more significant risk: Roughly one in five individuals requiring care will need it for five
years or longer.6
From an advisory standpoint, duration matters. A short-term rehabilitation stay is one scenario,
but a multiyear period of dependency - especially when it coincides with retirement withdrawals
or limited income - can have material implications for both cash flow and estate planning.
What Does Long-Term Care Cost?
Costs vary by region and level of care, but national median estimates provide perspective7:
- The annual national median cost of a semiprivate nursing home room is about
$114,975; a private room is about $129,575.
- Assisted living community care averages roughly $74,400 per year.
- Home-based care such as a home health aide runs around $35 per hour nationally.
These figures represent median costs at typical facilities and do not account for inflation,
specialized memory care, or ancillary medical expenses. In higher-cost states such as
California, rates can be significantly above the national median.8
Care costs continue to rise rapidly as labor costs and demand grow. For example,
assisted living costs increased about 10 percent compared with the last year surveyed.9 Even
modest annual increases can compound significantly over multiyear stays.
How Can Costs Affect Savings?
Long-term care can have a significant impact on a client's financial plan. Even a few years of
private-pay care can redirect assets toward care expenses, potentially reducing funds available
for retirement income, lifestyle goals, or legacy planning.
To put this in perspective:
- Nursing home care can easily cost hundreds of thousands of dollars over several years.
- Assisted living or graduated care facilities can be expensive and can consume a material
portion of savings.
For many retirees, savings are intended to fund ongoing living expenses, supplement Social
Security, and ultimately pass to heirs. Extended LTC expenses can quickly divert these assets,
creating risk to both retirement and estate planning objectives.10
Why Traditional Estate Plans Do Not Address LTC Risk
Most estate plans are structured to achieve the following goals:
- Facilitate and direct asset transfers at death
- Minimize certain taxes
- Provide authority for medical and financial decisions during incapacity
However, these tools often assume that assets remain largely intact until death. LTC can
introduce a lifetime risk that can quickly erode or deplete those assets, and standard estate
planning documents are often not enough.
- Wills. Take effect only at death and provide no protection against LTC costs during life
- Revocable living trusts. Centralize asset management and avoid probate, but assets
remain exposed to private-pay long-term care expenses
- Durable powers of attorney. Grant decision-making authority but do not shield assets from
care costs
Even a well-constructed estate plan can be compromised if long-term care is not addressed. For
advisors, the implication is clear: Integrating LTC planning into the broader estate and financial
plan is essential to help clients preserve assets, protect spousal income, and maintain legacy
intentions.
MEREDITH | PC
4325 Windsor Centre Trail
Suite 400
Flower Mound Texas 75028
214-513-1013
This newsletter is for informational purposes only and is not intended to be construed as written advice about a Federal tax matter. Readers should consult with their own professional advisors to evaluate or pursue tax, accounting, financial, or legal planning strategies.
You have received this newsletter because I believe you will find its content valuable. Please feel free to Contact Me if you have any questions about this or any matters relating to estate planning.
