Nov 05, 2018

Planning for Your Parents' Long-Term Care Expenses

By United Capital

Photo credit: Getty Images

In a previous blog I wrote about the Sandwich Generation – a generation of people (typically in their 30s or 40s) who are responsible for bringing up their own children and also for the care of their aging parents. I mentioned that I am a member of that group due to the care and support I provide for my mother, in addition to raising my young son. Naturally, any issues pertaining to the Sandwich Generation are of interest to me.

Recently, I came across some information that was news to me and it seemed sufficiently important to pass it along here. It concerns the issue of long-term care and the possibility that, under certain circumstances, children can be held financially responsible for the expenses incurred in the care of their elderly parents. Typically, these would be costs associated with nursing home care.

Before anyone panics at that notion, please understand that it is not my intention to cause any fear or alarm. It is my purpose to simply make people aware that in many states, there are laws on the books that allow for such possibilities, and to offer some practical advice on how to ensure this scenario doesn’t apply to you.

Filial Responsibility Laws

Most Americans are unaware that 29 states (plus Puerto Rico) have “filial responsibility” laws on the books that make adult children responsible for their parents’ medical care, if their parents can’t pay. However, these rules do not apply when parents are eligible for Medicaid – in those cases, Medicaid covers the expenses. But filial responsibility laws could require children to pay if their parents incurred medical expenses before qualifying for Medicaid.

Though filial responsibility laws exist and are legally binding, they are rarely enforced. Most states stopped invoking filial support laws after Medicaid was created in 1965. These days, Medicaid generally steps in to cover expenses when nursing home residents can no longer pay.

But a few states – including New Jersey – have reserved the option for nursing homes and other health care providers to seek payment from family members of nursing home residents with unpaid bills. Still, as I say, it is rare for adult children to be held financially responsible for their parents’ unpaid expenses.

Read the Fine Print Carefully

Most well-intentioned children go to great lengths to find a long-term care facility for their aging parents that meets their needs and budget. However, most children are not aware that, under certain circumstances, they could be financially liable for their parents’ elder care expenses, which can be considerable. According to a 2017 report from a Genworth Cost of Care Survey, the average national amount paid for assisted living residences was $3,750 per month.

Often, adult children will help their parents sign the residency agreements required for admission by long-term care facilities and, in some cases, the language in those agreements can be confusing or even deceptive. Family members should always read residency contracts very carefully and never co-sign anything unless they intend to be the guarantor for their parents, to use their own resources to cover their parents’ bills after their financial assets are depleted.

This is especially important for an adult child who has been legally designated to manage their parents’ finances through a power of attorney. In any signed residency contract, it should be made perfectly clear that only the parents’ funds will be used to cover expenses – not their own.

Of course, in these circumstances, it is a very good idea to consult with an elder care attorney for advice and guidance before signing any legally binding document.

Pre-Planning is Invaluable

Too often frank and honest family discussions involving parental health care are postponed until a family is forced to address them, either by virtue of a sudden medical emergency or by the onset of a chronic illness, and these are not the best circumstances in which to solve delicate and sensitive family issues. Once a family is in crisis mode, enormous emotional pressures are brought to bear, often making logical and rational decision-making difficult to achieve. It is far better for everyone involved – parents and children – to be involved early in the planning for all possible eventualities regarding the health care for aging parents.

Adult siblings are encouraged to initiate an open dialogue about how costs related to their parents’ health care should be handled, especially if one or more siblings are providing financial support, and others are not. Some adult siblings enter into a caregiver agreement that establishes who is responsible for paying and how that sibling will be reimbursed.

Those siblings who are providing financial support might be reimbursed later through the parent’s estate. Or, if a parent lives at home with an adult child, he or she might receive a regular monthly stipend to help defray the cost of meals and any home health services that might be necessary.

Also, parents are encouraged to be actively engaged in the planning for their own health care needs in their later years. This could involve issues such as effective retirement planning, the acquisition of long term health care insurance, or timely enrollment in Medicare or, if necessary, Medicaid programs.

Financial Life Management

We all want the best for our parents, but their long-term care expenses need not imperil our own financial well-being. Understand the filial responsibility laws in your state, review all residency contracts carefully, consult with an elder care attorney if necessary, and facilitate open discussions with your siblings early on regarding the shared responsibilities for caring for aging parents.

Finally, as always, I strongly advise a close and ongoing relationship with your financial adviser. These kinds of financial life management issues are exactly what professional advisers are trained to address, and with the proper guidance, they will help to ensure the best possible outcomes for all concerned.

United Capital

United Capital

United Capital Financial Advisers, LLC d/b/a Goldman Sachs Personal Financial Management (“GS PFM”) is a registered investment adviser and an affiliate of Goldman Sachs & Co. LLC and subsidiary of The Goldman Sachs Group, Inc., a worldwide, full-service investment banking, broker-dealer, asset management, and financial services organization.

The information contained herein is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered investment advice. GS PFM does not provide legal, tax, or accounting advice. Clients should obtain their own independent legal, tax, or accounting advice based on their particular circumstances. Please contact your financial adviser with questions about your specific needs and circumstances.

Information and opinions expressed by individuals other than GS PFM employees do not necessarily reflect the view of GS PFM. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice.