Financial Planning for the Cost of Long-Term Care: Strategies to Prepare the Entire Family
Few families look forward to discussing long-term care. But being financially prepared for the possibility of needing care can provide something invaluable: clarity, financial protection, and peace of mind for the entire family.
Whether you’re planning for yourself or helping a parent navigate these decisions, this guide outlines the key considerations.
Key Takeaways
- Start planning early, ideally in your 50s or earlier, before health changes limit your options.
- Involve your family in the conversation so everyone understands your wishes and the financial plan.
- Organize essential legal documents such as powers of attorney, advance directives, and beneficiary designations.
- Explore multiple funding strategies for long-term care, including insurance, self-funding, and Medicaid planning.
- Work with a trusted financial advisor who can integrate long-term planning with estate, tax, and retirement strategies.
Long-Term Care Costs Impact the Whole Family
According to the Administration for Community Living, someone turning 65 today has a nearly 70% chance of needing some form of long-term care services and support in their remaining years, for an average duration of three years. Long-term care services include medical and non-medical care for people with a chronic illness or disability. Typically, long-term care services assist people with daily living activities such as dressing, bathing, and using the bathroom.
Without a clear plan, families often find themselves making rushed decisions: draining savings, taking on debt, or facing difficult disagreements during an already emotional time. The financial toll compounds quickly.
End of life financial planning is an act of love and consideration, not morbidity. It tells your family: “I cared enough to make this easier for you.” By addressing these issues early, you can reduce uncertainty and help ensure your wishes are understood.
Understanding the Real Cost of Long-Term Care
Many families assume Medicare will cover their long-term care expenses. In reality, Medicare provides limited skilled nursing coverage following a hospital stay, but it does not cover for the custodial care that makes up the majority of long-term care needs.
Here’s what the costs actually look like today, based on data from ACL.gov and the Genworth and CareScout 2024 Cost of Care Survey:
Nursing Home (Private Room)
$9,500 – $10,000
Highest level of medical supervision
Nursing Home (Semi-Private)
$8,500 – $9,000
Shared room; still significant cost
Assisted Living Facility
~$4,800
National median; varies widely by region
In-Home Health Aide
$5,300 – $6,500
Depends on hours and level of care needed
Multiply any of these figures by three years (the average duration of care), and the potential cost ranges from $170,000 to $360,000 or more.
Regional variation matters as well. Costs in the Northeast and West Coast often exceed national medians, which can significantly affect long-term planning.
Essential Legal and Financial Documents to Organize
Effective long-term care planning starts with getting the right documents in place, ideally well before they’re needed.
Power of Attorney
A financial power of attorney allows a trusted person to manage your financial affairs if you become unable to do so. This may include paying bills, managing investments, or handling real estate transactions.
A healthcare power of attorney (sometimes called a healthcare proxy) authorizes someone to make medical decisions on your behalf. These are separate documents, and both are typically necessary.
Advance Directive
An advance directive (sometimes called a living will) outlines out your preferences for medical treatment if you cannot communicate them yourself. This may include decisions about resuscitation, ventilator use, and palliative care.
Without clear instructions, families may be forced to make difficult medical decisions without knowing your wishes.
Wills and Trusts
Understanding the difference between a will and a living trust is also important.
A will goes through probate, a court-supervised process that can take months and become public record. A living trust allows your assets to pass directly to beneficiaries, often more quickly and privately. Neither is universally “better”; the right choice depends on your estate’s complexity, your state’s probate laws, and your family’s needs.
Two often-overlooked items are beneficiary designations on retirement accounts, life insurance policies, and annuities.
If you haven’t reviewed these recently, outdated designations could unintentionally send assets to an ex-spouse or a deceased relative’s estate. A HIPAA authorization form allows your family members to access your medical information, which is essential for coordinating care.
Strategic Estate Planning
One more critical concept: step-up in basis. If you transfer appreciated assets to your children before death, they inherit your original cost basis and may face a larger capital gains tax when they sell. If those same assets pass at death, they generally receive a stepped-up basis equal to the current market value at the time, potentially reducing or eliminating capital gains taxes. Step-up rules have exceptions and can change, and outcomes depend on the asset type, state law, and taxpayer’s situation.
Premature asset transfers, while well-intentioned, can backfire significantly. Consult a tax professional before making any such moves.
Long-Term Care Insurance and Other Funding Strategies
There is no single right way to pay for long-term care services. The best strategy depends on your health, assets, family circumstance, and risk tolerance. Here are the primary options:
Traditional long-term care insurance pays a daily or monthly benefit to help cover care costs. Premiums are generally lower when you purchase coverage in your 50s while still healthy. However, premiums may increase over time, and if you never need care, the premiums are not recoverable.
Hybrid Life/LTC policies combine life insurance with long-term care benefits. If you need care, the policy provides coverage. If not, beneficiaries receive a death benefit. These policies often require a larger upfront premium but address the “use it or lose it” concern of traditional insurance.
Self-funding means setting aside dedicated assets to cover potential care costs. This approach works for families with substantial savings, but it requires disciplined planning and realistic projections and carries the risk of underestimating the total cost or the duration of care needed.
Medicaid planning is relevant for families with more modest resources. Eligibility requires meeting strict income and asset limits. Qualifying often involves a spend-down process, where countable assets are reduced to meet eligibility thresholds. Because Medicaid rules include a five-year lookback period, planning well in advance is important.
Each of these strategies carries trade-offs. A financial advisor who understands long-term care needs can help you weigh the costs, risks, and benefits in the context of your complete financial picture.
Legacy Considerations
Without a plan, extended care can force families to draw down retirement accounts more quickly than expected, liquidate investments during unfavorable markets, or sell illiquid assets at the wrong time. This type of disruption can affect current lifestyle and reduce what remains for a surviving spouse, heirs, or charitable goals.
A thoughtful financial strategy focuses on three key priorities:
- Protecting the healthy spouse.
If one partner needs care, the other may still need decades of income. Planning should ensure that essential living expenses remain secure even if significant care costs arise. - Managing taxes and withdrawal strategy.
How care costs are funded matters. Drawing from taxable accounts, retirement plans, or insurance benefits may help minimize tax spikes and preserve long-term portfolio growth. - Maintaining liquidity and flexibility.
Care costs often arise unexpectedly. Keeping sufficient liquid assets helps avoid forced sales of long-term investments.
Ultimately, long-term care planning often involves balancing three priorities: maintaining independence, protecting a spouse, and preserving a meaningful legacy. Integrating care planning into your broader wealth strategy helps ensure that one unexpected event doesn’t derail the financial future you’ve worked to build.
Talking to Your Family About End-of-Life Finances
Knowing what to plan is one thing. Getting your family on the same page is another. Many people avoid these conversations because they feel awkward, premature, or even morbid. However, addressing them early often prevents confusion or conflict later.
Start by discussing your values and preferences, not just your finances. What type of care would you want? What matters most to you as you age?
When conversations focus on goals rather than numbers, they often become more constructive.
Some families find it helpful to hold a structured family meeting, possibly including a financial advisor or estate attorney. A neutral professional can help keep the conversation focused and reduce misunderstandings.
It is also helpful for family members to know:
- where important documents are stored
- who holds power of attorney
- who is designated as healthcare proxy
Clear communication today can help reduce uncertainty during future health events.
Working with a Trusted Advisor
Long-term care planning affects nearly every part of your financial life: investments, taxes, estate planning, insurance, and family decisions. While it is possible to address these independently, an experienced advisor can help you identify blind spots and bring everything into a cohesive plan.
At SKY Investment Group, we help families navigate these decisions with clarity within the context of a comprehensive wealth strategy. If you’re ready to take the next step in protecting your family’s future, we’re here to help.
Frequently Asked Questions
How do you choose between a living trust and a will?
It depends on your goals. A living trust avoids probate, keeps your estate private, and can provide for management of your assets if you become incapacitated.
A will is simpler and less expensive to create, but goes through probate. Many families use both: a trust for major assets and a pour-over will as a safety net. Your state’s probate laws and the complexity of your estate should guide the decision.
Should you update your financial plan after losing a spouse?
Yes. The loss of a spouse can significantly affect every dimension of your financial picture, from income sources, tax filing status, estate structure, and caregiving assumptions.
Beneficiary designations, powers of attorney, and healthcare directives should all be reviewed and updated.
Meeting with an advisor soon after a loss can help ensure important decisions are made thoughtfully rather than reactively.
How much should you set aside to pay for long-term care?
Many financial plans assume a potential care reserve of $200,000 to $400,000 per person, as shown in the chart above, based on national cost estimates and typical care duration.
However, the appropriate amount depends on location, desired level of care, and whether a spouse’s financial security must also be protected.
Should you transfer assets to family members to qualify for Medicaid?
Asset transfers can create unintended tax consequences and may trigger Medicaid’s five-year lookback penalties, delaying eligibility.
In addition, gifting appreciated assets during your lifetime may eliminate the step-up in basis, increasing capital gains taxes for heirs.
Always consult a tax professional or financial advisor before making transfers.
Can long-term care planning improve tax efficiency?
Potentially. Strategies such as coordinating withdrawals across account types, donating appreciated assets, or using insurance benefits strategically may help manage tax exposure if care becomes necessary.
SKY Investment Group, LLC is an SEC registered investment advisor. Being registered with the SEC does not imply any specific level of skill or training.
Neither SKY Investment Group, LLC nor Aspen provide tax or legal advice—please contact a professional for advice in such matters.
Investing involves the risk of loss, including the risk of loss of the entire investment. Diversification does not ensure a profit or protect against a loss.
