En español | We all should plan that someday we will need caregiving. There are simply no guarantees on lifetime good health and longevity. What is certain, though, is that medical crises and chronic illness can wreak havoc on a family's finances.
The majority of people with health care or functional (communication, transportation, supervision) needs will require some caregiving assistance. For those who are not living in an assisted living or nursing home, only 3 in 10 use paid help from housekeepers, aides or other assistance. That's because most caregiving in the U.S. is done by informal caregivers — the friends and family of the person who needs help. These informal caregivers are often not paid for their work, often to great personal expense and risk.
Caregivers, on average, spend $7,000 to $13,000 out of pocket annually to help their care partners. They devote 23.7 hours per week on average (even more since the COVID-19 outbreak). Simply said, they are the backbone of the U.S. health care system and the front line of care provided to the ill and aging. If we paid these caregivers for their hours and reimbursed them for their time, we would be shelling out tens of thousands of dollars each to every single one of the nation's approximately 53 million caregivers.
Of course, caregivers don't do this for the money. Most of us do this for love — because it's family — and because we want to help. As an unfortunate result, caregivers’ personal finances suffer. They may rack up debt or reduce their savings. The younger they begin caregiving, the more dramatic the impact on their financial security.
I can't think of a single person who wants to sock their loved ones with a mountain of debt in return for caregiving. There are ways to prevent the cycle of financial detriment — or at least mitigate it — for your caregivers. By projecting your long-term needs, budgeting appropriately, learning your options, and setting up your accounts and assets deliberately, you can carve out a support plan for your current and future caregivers.
Creating a life care plan
Ideally, you want to take care of your caregivers while they're actively assisting you. You can improve your caregivers’ overall stress levels and reduce the burden of financial strain by helping them continue to pay their bills so they can put money into their own retirement or savings and not accumulate debt.
If possible, apply for insurance policies that will cover in-home care (including care that your informal caregiver provides). Planning for adequate respite care may permit your caregiver to continue their “day job.” This has myriad benefits, including better career longevity and continued wages, benefits and contributions to their own retirement plans.
Explore what programs cover caregiver compensation or provide assistance to offset the costs of care in your state of residence. You may qualify for, and receive assistance through, veterans’ benefits and programs and state Medicaid programs.
• Benefits Checkup: A free online tool managed by the National Council on Aging that may help you find benefits for which you qualify.
• AARP Foundation's Guide to Public Benefits: This resource will direct you to state and federal financial assistance for seniors.
• Eldercare Locator: The U.S. Administration on Aging (AoA) resource may help you find services for yourself or your loved one.
A personal care agreement is a written agreement between you and the family member or other person who will provide care for compensation. It permits you to pay a reasonable rate for your caregiver's services and spend down assets or income to become eligible for Medicaid, and can be in place whether you live in a nursing home now (or in the future) and need Medicaid now (or in the future).
In conjunction with this, make a plan B in case you do need public assistance to help with facility costs at some point. Determine what your options will be if your care needs get too great for your caregivers. Many of us wait until our caregivers are totally burned out and simply can't meet the medical or physical tasks of caregiving before considering a move to an assisted living or nursing home. It can be a huge relief for all involved to transfer residences to a safe environment with trained professionals.
A family agreement in which multiple family members contract to contribute to the household's needs may alleviate the out-of-pocket costs and financial strain on your hands-on caregiver. You may also consider gifting a sum of money to your caregiver instead of paying them as an employee.
All of those techniques should be strategic and well thought out. Not a week goes by without a client asking me if they can just put their kids’ names on their house as a thank-you for caregiving. You must be very intentional about when — and how — money or assets are transferred to avoid unintended consequences. If there is a possibility that you will need public benefits, then this could be looked on unfavorably and result in ineligibility for benefits. There could be tax consequences for gifting or transferring assets to your caregiver, not to mention other undesirable results like exposure to liability if you or your caregiver are sued and jointly own an asset, and compromising homestead protection for your real estate. Paying a caregiver as an employee or gifting them money or assets could jeopardize their own public benefits (for example, if they receive Social Security disability insurance).
Another word of caution: When you endeavor to do this type of life care planning, I encourage you to use the services of an attorney and a tax professional. Know before you act, and think it all through far in advance, if at all possible.
If your financial circumstances don't allow for compensating your caregivers during your lifetime, you may consider providing for them in your estate (or “post-life") plan.
Creating a post-life plan
You may not have the means to direct any assets to your caregiver while you are alive. Indeed, 68 percent of caregivers actually contribute money to their care partner, not the other way around. But you may be able to “reimburse” them after you pass by way of an inheritance.
If you have active term or whole life insurance, you may name your caregiver as the beneficiary. You may also do this for other accounts on which you can name beneficiaries. Be sure that you comply with your state's laws regarding familial and spousal inheritance and that you understand the rules about distributions to beneficiaries on your retirement accounts.
Remember, inheritances don't always have to be “fair” to all your family members. About 64 percent of caregivers are solo primary caregivers or provide the majority of unpaid care. If you have more than one child but only one of them is your hands-on caregiver, then consider the value they are bringing to your life. There is a lot of labor that goes into caregiving, for zero pay. And if they have stepped away from the workforce to help you, then they are not receiving income that they otherwise could be getting. If you are hesitant because you feel that you may be cutting out other children or may hurt feelings, I encourage you to talk this out with your loved ones. If a conversation isn't possible, write a letter that they can read after your death. Explaining your reasoning for unequal inheritances, particularly in the case of caregivers, may smooth the ruffled feathers of children who are inheriting less.
When considering our own needs, we should consider the needs of our caregivers, too. They give up so much, and some receive so little in return. Whatever financial support you can incorporate in your care plan will surely be appreciated by your caregivers and leave them in a better position to move forward with their lives when caregiving comes to an end.