Long-Term Care Expense Planning for Parents

August 14, 2021

Many adults are now finding that their parents are living longer as life expectancy continues to rise annually. While this of course this is welcome news, it also has unforeseen consequences.

In 2020, the average life expectancy in the U.S. is 79 years. According to the U.S. Department of Health and Human Services, 70% of parents over 65 years of age are in need of long-term services and support.

Unfortunately, many do not plan carefully enough for the costly expenses that arise from long term care. According to Genworth’s Cost of Care Survey, the average cost for a private room in a nursing home in the U.S. is $8,365 per month, a semi-private room costs slightly less at $7,441 per month. In comparison the average rent for a New York City apartment in Manhattan is $3,667 per month.

Adult children tend to believe that their parents or even the government are responsible for these costs, however, this is not necessarily the case. Certain states hold adults financially responsible for their parents’ long-term care expenses, including those of costly nursing home fees.

Filial Responsibility Laws

Filial responsibility law assigns legal duty for the financial burden of long-term care to an adult child. Currently, 29 states and Puerto Rico have laws that indicate that it is an adult child’s duty to provide necessities for parents who cannot do so for themselves.

Fortunately, even though these laws are on the books of many states, they’re seldom enforced, as Medicaid covers nursing home expenses if a parent can no longer pay. However, parents must apply and be eligible for this to happen. If they incur expenses before they qualify, their adult child could be held responsible.

Unfortunately, some nursing homes and long-term care facilities have enlisted courts to seek reimbursement from adult children for unpaid bills. One case in Pennsylvania held an adult son responsible for $93,000 once it was determined he was capable of paying the debt. The extent of financial responsibility depends on the state, but it can nevertheless lead to staggering costs if the courts favour the plaintiff.

Understand the Fine Print in Residency Agreements

Another area of great financial concern is the fine print in residency agreements. Finding an appropriate long-term care facility that meets the needs of aging parents and your budget can be time-consuming and emotionally draining. Once an appropriate care facility is found, you may be so relieved that you sign the contract without fully understanding all the potential responsibilities that you may bear.

These contracts are notoriously complicated legal documents and can be very confusing. Hidden within the legalese may be a clause that can leave you financially liable for your parent’s long-term care expense, under certain circumstances.
Adult children with power of attorney over their parent’s finances need to be especially attentive to the language in a residency agreement. Some agreements stipulate that they’re liable once their parent’s funds are depleted.

It is thus quite important for an individual who does not understand the language in a residency agreement to seek legal advice through an attorney.

Otherwise, co-signing for a parent could lead to substantial expenses.

Planning for Protection

All too often, care is not discussed until a health situation arises. The adult child busily deals with the emotional and logistical issues surrounding a medical emergency or chronic illness. In these emergencies often people are reacting to a crisis, instead of falling back on a well-laid plan.

Frank and honest discussions about the future should be held as early as possible. No one thinks clearly when faced with sensitive and emotional decisions regarding their parents. Adult children are often reluctant to bring up the topic, because they’re worried that their parents might take offence. However, parents often have very clear wants should they face a health issue. It is crucial that they have their say.

Therefore, it is critical that action is taken. Get everything out on the table. Your parents might want to stay in a facility near family or stay in the same facility as one another, especially if health issues are also a concern.
Of course, finances are essential in this discussion. While some children are able and willing to provide financial support, others may not be in the same position. Further, those able to pay may want to be reimbursed from the parent’s estate later. Overall, in-depth discussions can prevent conflict when it’s time to finally settle a parent’s estate, as well as other financial matters of this sort.

There are times when an adult child may provide long-term care, which would require an in depth conversation on how they’ll be reimbursed. Caring for a parent requires major time commitments and emotional investment and shouldn’t be considered an unpaid duty. A caregiver agreement can lay out compensation that’s at least equal to what it would cost to hire from an outside service.

It is therefore essential to discuss issues such as retirement plans, long-term health insurance, Medicare and Medicaid. A lack of proper financial planning may lead to assets being sold prematurely to pay for care or might require adult children to pay on the parent’s behalf. To avoid confusion, get everything in writing and store all information in one central, easily-accessible file.

Actively Manage Finances

Even though you want the best for your parents, it shouldn’t be at your financial peril. Discuss long-term care matters with your parents and siblings early on and understand the laws in your state. Consult an attorney that specializes in elder care if you do not understand a residency agreement or whether filial responsibility law could apply in your state.

Overall, the best way to ensure your parent’s a smooth transition into care is through good financial planning. A financial adviser can pinpoint potential issues, create a plan that ensures finances meet needs, and suggest options to help you grow your wealth and protect you financially.

Active financial management creates financial well-being and peace of mind, even during difficult times. Contact us for a free consultation and get the information you need now.