Long term care planning is the process of preparing financially, legally, and practically for the potential need for extended personal care and medical services later in life. It involves making decisions and putting plans in place — ideally well in advance of needing care — to ensure that you or a loved one can access quality care without exhausting all available financial resources or placing an unsustainable burden on family members.
Long term care planning is one of the most important and most overlooked aspects of comprehensive financial and estate planning. The cost of long term care is one of the greatest financial risks facing older Americans and a thoughtful plan can make an enormous difference in the quality of care received and the financial security of the entire family.
What is long term care
Long term care refers to a range of personal care and supportive services provided to people who need ongoing assistance with activities of daily living — such as bathing, dressing, eating, and toileting — or who require supervision due to cognitive impairment such as Alzheimer’s disease or dementia.
Long term care is not the same as medical care. It is not typically aimed at curing illness or injury but rather at helping people function as independently as possible over an extended period of time. Long term care can be provided in a variety of settings including:
- The person’s own home
- An adult day care program
- An assisted living facility
- A memory care community
- A continuing care retirement community
- A skilled nursing facility
Why long term care planning matters
The statistics surrounding long term care needs make planning essential:
- Approximately 70 percent of people turning 65 today will need some form of long term care during their lifetime
- The average length of a long term care need is approximately three years though many people need care for much longer
- The cost of a private room in a nursing home exceeds $100,000 per year in many parts of the United States
- The cost of assisted living averages over $50,000 per year nationally
- Medicare does not cover most long term care costs — it covers only short term skilled nursing facility care following a qualifying hospital stay
- Medicaid does cover long term care but only for people who have limited income and assets — qualifying often requires spending down most of a person’s savings
Without a plan the cost of long term care can rapidly deplete a lifetime of savings leaving a spouse or other family members financially vulnerable.
The components of a long term care plan
A comprehensive long term care plan addresses several interconnected areas:
Financial planning Determining how long term care will be paid for is the foundation of any long term care plan. Options include:
- Self-funding — using personal savings, investments, and retirement income to pay for care
- Long term care insurance — purchasing a policy that pays a daily or monthly benefit when care is needed
- Hybrid life insurance or annuity products — financial products that combine a death benefit or annuity with a long term care benefit
- Medicaid planning — working with an elder law attorney to structure finances to qualify for Medicaid while preserving as many assets as possible
- Veterans benefits — eligible veterans and surviving spouses may qualify for VA pension with Aid and Attendance to help pay for care
Legal planning Having the right legal documents in place is essential for managing care decisions and finances when a person can no longer do so independently. Key legal documents include:
- Durable power of attorney for finances — authorizes a trusted person to manage financial and legal affairs
- Healthcare power of attorney — authorizes a trusted person to make medical decisions
- Living will or advance directive — documents wishes regarding specific medical treatments
- Will or revocable living trust — determines how assets are distributed at death and avoids probate
Care planning Thinking through the practical aspects of potential care needs in advance can reduce stress and improve outcomes when care is eventually needed. Care planning considerations include:
- Identifying who will provide care and in what setting
- Discussing care preferences with family members
- Researching care options in the community
- Considering home modifications that could extend the ability to remain at home safely
- Identifying and establishing relationships with local resources and services
Long term care insurance
Long term care insurance is a dedicated insurance product designed to cover the cost of extended personal care services. A traditional long term care insurance policy pays a daily or monthly benefit — typically ranging from $100 to $300 or more per day — when the insured is unable to perform a specified number of activities of daily living or requires supervision due to cognitive impairment.
Key features of long term care insurance policies include:
- Benefit amount — the daily or monthly maximum benefit the policy will pay
- Benefit period — the length of time the policy will pay benefits — typically two to five years or lifetime
- Elimination period — the waiting period — typically 30 to 90 days — before benefits begin
- Inflation protection — a feature that increases the benefit amount over time to keep pace with rising care costs
- Home care coverage — whether the policy covers care provided at home as well as in facilities
The best time to purchase long term care insurance is typically in your 50s or early 60s when premiums are lower and health qualifications are easier to meet. Waiting until health problems develop can result in higher premiums or an inability to qualify for coverage.
Hybrid long term care products
Because traditional long term care insurance premiums can be expensive and are subject to rate increases some people choose hybrid products that combine long term care benefits with life insurance or annuities:
- Life insurance with long term care rider — a life insurance policy that allows the death benefit to be used to pay for long term care if needed. If care is never needed the death benefit passes to heirs.
- Annuity with long term care benefit — an annuity that provides enhanced benefits for long term care expenses
Hybrid products typically require a larger upfront premium but provide the assurance that the money will be used — either for care or as a death benefit — rather than potentially being paid in premiums for coverage that is never needed.
Medicaid planning as part of long term care planning
For many people Medicaid will eventually pay for some or all of their long term care costs. Because Medicaid is needs-based planning ahead can help preserve assets while ensuring access to quality care.
Effective Medicaid planning typically involves:
- Understanding the Medicaid eligibility rules in your state including the asset limit, income rules, and look-back period
- Identifying which assets are exempt from Medicaid’s asset calculations
- Considering legal strategies to protect non-exempt assets such as irrevocable Medicaid asset protection trusts
- Planning for the community spouse if applicable
- Understanding Medicaid estate recovery and planning to minimize its impact
Medicaid planning is complex and highly state-specific. Working with an elder law attorney well in advance of needing care — ideally five or more years before care is anticipated — provides the most planning options.
When to start long term care planning
The most important thing to understand about long term care planning is that earlier is almost always better. Planning options narrow significantly as a person ages or develops health problems. Specifically:
- Long term care insurance is best purchased in the 50s or early 60s
- Medicaid asset protection trusts must be established more than five years before applying for Medicaid to avoid the look-back penalty
- Legal documents such as powers of attorney must be created while a person has mental capacity — waiting until a crisis occurs may be too late
- Care preferences and family expectations are best discussed before a crisis forces difficult decisions under stress
A useful rule of thumb is to begin long term care planning no later than age 60 — and earlier if there is a family history of conditions that may require care such as Alzheimer’s disease.
Having the conversation with family
One of the most important steps in long term care planning is having open conversations with family members about care preferences, finances, and expectations. Topics to discuss include:
- What type of care would you prefer if you needed it — home care, assisted living, or another setting?
- Who would you want to make decisions on your behalf if you could not?
- What are your wishes regarding end-of-life medical treatment?
- What financial resources are available to pay for care?
- What role are family members willing and able to play in providing or coordinating care?
These conversations can be difficult but they are enormously valuable in ensuring that care decisions reflect the individual’s actual wishes and that family members are not left making difficult decisions without guidance.
Key terms to know
- Long term care planning — the process of preparing financially, legally, and practically for the potential need for extended personal care
- Long term care — extended personal care and supportive services for people who need ongoing assistance with daily activities
- Activities of daily living — ADLs — basic self-care tasks used to measure functional ability and determine long term care eligibility
- Long term care insurance — insurance that pays benefits when the insured needs extended personal care services
- Hybrid long term care product — a financial product combining life insurance or annuity benefits with long term care coverage
- Medicaid planning — legal strategies to qualify for Medicaid benefits while preserving assets
- Irrevocable Medicaid asset protection trust — a trust used to protect assets from Medicaid spend-down requirements
- Look-back period — the 60-month period during which Medicaid reviews asset transfers when evaluating nursing home eligibility
- Community spouse — the spouse who remains at home when the other spouse enters a nursing home and applies for Medicaid
Sources
- Administration for Community Living — acl.gov
- National Academy of Elder Law Attorneys — naela.org
- American Association for Long-Term Care Insurance — aaltci.org
- Medicare.gov
- USA.gov — Long Term Care
For state-specific Medicaid eligibility limits and resources visit our State Elder Care and Estate Planning Resources page.
Helpful Tools for Long Term Care Planning
Organizing your long-term care planning documents is an important first step. A fireproof document safe can protect your will trust powers of attorney and insurance policies from fire water and theft. Many families also find it helpful to keep a dedicated expanding file folder for estate planning documents that family members can easily locate in an emergency.
For families navigating the emotional and practical challenges of long term care planning these books are highly recommended by caregivers and elder law professionals:
- The 36-Hour Day — the most widely recommended guide for families dealing with dementia and long-term care decisions
- Being Mortal by Atul Gawande — a thoughtful guide to end of life care and planning conversations
- Get It Together by Melanie Cullen — a practical workbook for organizing all your important documents and end of life wishes
This article is for general informational purposes only and does not constitute legal or financial advice. Long term care planning laws, costs, and options vary significantly by state and individual circumstance. Consult a licensed elder law attorney and financial advisor for guidance specific to your situation.