I remember when I was first tasked with figuring how the finances would work for our family to assist with caregiving. Social Security, Medicare, Long Term Care; the reality was daunting. I didn’t even have enough work history or income to qualify for these benefits and I needed figure out how they work for my family.
If you are a working professional who is tasked with the responsibility of assisting an elderly parent who has been diagnosed with a chronic illness, you maybe having similar thoughts as I was in regards to their finances. If this is the case, having a plan is going to be your saving grace to make sure they receive the best care possible, without interruption due to finances.
First, you need access to your loved one’s information. Power of Attorney is critical in managing day-to-day finances for someone who a chronic illness, however, having the document is not the only step. Make sure banks, financial advisors, CPA’s and anybody dealing with privileged information receives a copy of it and approves you to act on your parent’s behalf.
Now that you have access to their information, you may have to make decisions about what assets to use to pay for their care. Below is a summary of some common assets you may use or need to know about:
- Social Security: Senior citizens are eligible for payments from the Social Security starting at full retirement age (typically age 67). The payments are based on their lifetime earnings and are paid out monthly. If someone is disabled prior to full retirement age, they may be eligible for Social Security payments as well.
- Medicare: Basically, there are three parts: Part A: hospital insurance, Part B: doctor visits and Part D: prescriptions. Medicare is available to individuals once they reach the age of 65. One thing to keep in mind with Medicare is that there is no long-term care insurance. They are eligible for Skilled Nursing Facility Care only after a hospital stay and only up to 100 days.
- Medicaid: This is a program designed for needy and vulnerable individuals and families. It is a federal program, however, each state is in charge of administering the Medicaid dollars and determining need. What is nice about Medicaid is that it does offer Skilled Nursing Facility Care. However, since this is designed for low income population, it is very hard to qualify. Families sometimes try to “spend down” a loved one’s assets to qualify them for Medicaid, however, states now have a five year look back period to see if large amount of assets were given away instead of being used for care. Consulting an attorney is the best way to implement a strategy to qualify a parent.
- Retirement Plans: Your parent may have saved money in a retirement plan during their working years or may have a pension from an old employer. It is important to use this as additional income if Social Security is not going to be enough. Some accounts you may typically see are 401(k)s, 403(b)s, Pensions, IRAs and Roth IRAs. All distributions from these accounts are considered to be taxable income (except the Roth IRA), so tax planning may be involved.
- Reverse Mortgage: Typically thought as a last resort, using a reverse mortgage on your parent’s home may be a great way to get some supplement income to cover the cost for care. If your family has decided not to keep the home after death and if there is little to no mortgage, this is a great way to create income off an asset that is illiquid. Reverse mortgages are only available to those 62 years and older and may only take up to a certain amount on the value of the home. If you are considering this option, discuss it with a financial planner as well as a reverse mortgage broker.
In my experience, the more prepared you are, the less likely for caregiving to become a nightmare. Make sure you create a plan and periodically check in to make sure you are on track. Don’t be afraid to ask for professional help as well. There are many professionals with expertise in these areas that can help ease the stress of trying to figure it out on your own.