For better or worse, millions of retirees will receive long-term care services – not from an assisted living facility or home care agency, but from their adult children. According to the National Alliance for Caregiving and the AARP, 65.7 million informal and family caregivers provide care to someone ill or disabled in the United States, and the vast majority of people who need that care are elderly.
While family caregiving is often a less-than-ideal situation brought about by a lack of assets or an inability to qualify for long term care coverage, it doesn’t have to be. It can take a toll on caregiver and recipient alike, but with proper planning, clients, their parents and their children can preserve their assets and make the most of the situation.
Reasons and expectations
Why do some people put their kids into a caregiving role?
“For most clients, it’s a matter of not having enough liquid assets or not having bought any insurance,” says Karen Lee, CFP with Karen Lee & Associates. “Most parents don’t want to be a burden on their kids, and they’re usually hoping the situation won’t happen to them.”
Still, some seniors prefer to receive care from family, in some cases preserving modest assets for their caregivers’ inheritance. And, while most adult children provide care out of a sense of obligation, it’s actually a convenient arrangement for some.
“Some adult children, usually daughters living nearby, don’t have to dramatically take away from their lives to provide care,” says Lee.
Regardless of their reasons, senior clients all too often fail to make their expectations known.
“It’s an uncomfortable conversation, similar to writing wills or buying disability insurance, and people just don’t want to think it could happen to them,” says Lee.
Costs to consider
Expenses will invariably be lower for family caregivers than professionals, but there are still costs to consider. Parents with modest assets may need help with food, housing and other regular expenses – items that would be covered in an assisted living stay.
Whether they age in place or move in with their kids, senior clients may also need renovations to make their homes livable. Seemingly simple installations such as grab bars, ramps and stair lifts can cost thousands, and an in-law suite could be a five-figure remodel.
These costs still pale in comparison to years of assisted living or full-time in-home care, but for clients weighing the pros and cons of putting their parents up in a retirement community, they should certainly be considered.
Part-time in-home care is also a potential expense – a necessity, even, in situations where one person is providing around-the-clock care.
“If there are means to do it, I would absolutely recommend it,” says Pearce Landry-Wegener, wealth management advisor with Summit Place Financial. “Otherwise the caregiver has no time to themselves.”
Ultimately, though, the greatest “expense” for family caregivers is opportunity cost.
In 2013, the AARP estimated the value of family caregiving services at $470 billion – almost twice the amount spent on professional in-home services. That value has to come from somewhere, of course, and on an individual level, it can represent hundreds or thousands of hours per year spent not working for pay. For families pooling their assets to pay for mom and dad, this is the consideration that will determine whether professional or family care makes more sense.
Flexible funding options
How should clients cover these costs?
“Long term care insurance is the primary thing that can offset them,” says Lee. Some LTCI and hybrid life policies will reimburse family caregivers, and families may need to draw up contracts to spell out what services are being provided. “In addition to monthly payouts, some policies offer reimbursement for home modifications, as well,” Lee adds.
For seniors lacking liquid assets, a reverse mortgage or home equity line of credit may also provide the income necessary for adult children to become full-time caregivers. Unlike LTCI benefits, home equity payouts aren’t qualified, and they can be flexibly used to pay for family care, part-time professional care, home renovations and more.
Even when the kids are footing the bills, they can still absorb their parents’ Social Security income to help with food, mortgage payments and other essentials.
Plus, “If the children are providing over 50 percent of the support, and the parent makes less than the personal exemption amount every year, they can claim the parent as a dependent on their tax return,” says Landry-Wegener.
Lost opportunities for long-term care
Family caregiving is a must for some, but banking on it early in retirement could keep clients from getting the care they need later on. Consider the all-too-common example of a couple who doesn’t purchase LTCI because they don’t think they’ll need it. Their children help out a few hours per week, but as they age, they realize the more frequent care they’d come to need would have been more affordable had they invested in their 50s.
“With any long term care annuity or hybrid policy with an inflation rider, your inflation-adjusted payout also grows during the years you’re not receiving benefits,” says Lee. Far from a “use it or lose it” investment, these policies make it even more feasible for clients to receive full-time professional care once their needs eclipse their families’ abilities to provide.
Many seniors also need skilled nursing care later in retirement, which family members can rarely provide. Again, a modest investment in an inflation-adjusted hybrid life policy could afford clients the ability to transition from part-time family care to full-time professional care once they need it. Without that investment, most seniors will have to rely on Medicaid.
The advisor’s role: facilitating communication
Family caregiving is as much an emotional and logistical issue as it is financial, and the particulars should be ironed out over years – not during a holiday or last-minute family meeting.
“The advisor’s role here is to make sure the family is having an open dialogue about the topic,” says Landry-Wegener. “It’s not just the advisor’s job to manage dollars and cents, but to manage a holistic plan for the client. This is part of their journey in life, and it’s something advisors should be comfortable talking about.”