Whether covering the cost of long-term care or other necessities, caring for aging parents, spouses, and other relatives can be expensive. A recent AARP report estimates that the average family caregiver incurs roughly $7,400 per year in out-of-pocket costs related to that caregiving.
"Seeing your aging parents struggle or stress about finances can be difficult to handle," says financial attorney Leslie H. Tayne, founder and director of Tayne Law Group PC, in Melville, New York. To keep your parents financially stable for as long as possible—and possibly preserve your inheritance—engage in some estate planning with them.
Assess the situation
The best way to help your parents plan for long-term care and the costs of aging is to begin estate planning as soon as you can, says Bridgewater, New Jersey, strategy, and execution consultant Kim Galeta.
"Create a plan for long-term care together," she says. "It is beneficial to create a document analyzing a few different scenarios and assign cost estimates to each so that you can have a realistic view of the ongoing financial needs as your parents age." Each year, Genworth Financial publishes its Cost of Care survey, which provides the latest estimates on caregiving in various parts of the country.
Some aging relatives may resist sharing this information but work sensitively to learn more about their assets—including home equity, retirement funds, and investments—to get a sense of the finances available to help fund their retirement and long-term care.
Create a smart asset distribution plan
Avoid liquidating stocks and retirement funds unless absolutely necessary, as that will likely trigger a tax liability, says Patrick Simasko, elder-law attorney and wealth-preservation specialist at Simasko Law in Mount Clemens, Michigan.
"Aging parents hate paying high taxes, so they only take out the required minimum distributions from their IRAs," he says. Under the SECURE Act, after a parent passes away, the children have to distribute the IRA within 10 years completely. If they are working, that means they are paying tax on those distributions at a potentially much higher tax bracket. Look at tax brackets and maximize the distributions to keep at the best, not just the lowest, tax bracket, Simasko says. Similarly, if aging parents sell appreciated stocks, they will owe capital gains tax.
Start with the National Council on Aging's Benefits Checkup, Galeta advises. This free resource will help you learn about the benefits your aging relative might qualify for, ranging from meals to income assistance and tax relief.
Nonprofit Area Agencies on Aging are located throughout the country and are dedicated to helping older adults. Medicaid and Veterans Affairs benefits may also be possibilities, depending on your loved one's financial situation and whether they served in the military. Visit Benefits.gov for more information on the government services for which they may be eligible, and that may affect income in retirement.
Create a plan
Depending on your loved one's finances, health, and other circumstances, explore various scenarios within their estate plan. If they continue working, they can continue to contribute to a traditional individual retirement account (IRA) until age 70.5, Galeta says.
In addition, if your parent delays claiming any Social Security, they may qualify for more benefits. For example, for people born between 1943 and 1954, 100 percent of their benefit is available at age 66. However, if they wait to collect until age 70, they will collect 132 percent of their benefit.
In addition, if it's feasible and safe to keep your parents in their home, that's often a more affordable and desirable option than moving them into a costly assisted living facility or nursing home, Simasko says.
Overall, the goal is to make the best of the situation and preserve wealth, both for your parents' long-term care needs and to leave a legacy, if that is the goal. By sharing information, you can work together to create a proactive estate plan that will maximize wealth and help provide for the future.
Find out more about Estate Planning Basics