As a result, many care recipients may look for ways to financially support their caregiver, especially if it’s a family member. TIAA experts say one of the first things to do if you’re in this situation is to talk to your financial advisor.
“You might need to bring in your financial advisor to help,” says Shelly Eweka, Financial Planning Strategy Director at TIAA. “They can take a look at your financial plan as well as that of your caregiver and run the numbers to see what the impact of various strategies is going to be.”
Making gifts to a caregiver
One of the more common strategies to financially help caregivers
is to simply provide cash or assets to the caregiver using their gift exemption. In 2020, for example, notes Dan Bollini, Wealth Planning Strategies Director at TIAA, individuals can give up to $15,000 to someone else without triggering gift taxes or dipping into their estate tax exemption. But not every retiree may be able to afford to do that without depleting assets needed to cover additional retirement expenses down the road. Be sure to check with your tax advisor on how to manage your unique circumstances.
“The giant question mark is that you don’t know what the future holds,” Bollini says. “You have to try to balance what your future needs will be with what you want to do now. If you start giving this much, what does that mean for you longer term?”
Another strategy is to change your estate plan to provide more to caregivers when you die. However, complications with that include that if you die with less assets than planned, they may not end up being compensated for their work, and it could also create family strife if not discussed openly beforehand. Additionally, if your caregiver is struggling financially now, money in the future may not be as helpful.
One other important thing to think about, says Bollini, is that some people without enough assets to pay for their care expenses may need to rely on Medicaid to cover those costs in the future. And in order to qualify, your assets or income must be below state-set limits. If you are considering making gifts in the five years before applying for Medicaid, be sure to talk to your financial advisor, because the amounts of these gifts could potentially disqualify you for Medicaid, at least for a period of time.
While it may seem overly formal, creating a legal employment contract between yourself and a family caregiver may help solve some of the concerns with providing them income. It means that instead of a gift, it’s an expense that would count toward depletion of assets if you needed to try to qualify for Medicaid. And it can help with family dynamics as well, Bollini says, because it eliminates any surprises about how much the caregiver may be receiving by putting it in writing.
The best strategy, however, is for both potential caregivers and care recipients to try to plan ahead as far as possible. That can be hard when the future is unknown.
“The costs can be all over the place,” says Dan Keady, CFP®, Chief Financial Planning Strategist at TIAA. “There are a substantial number of people who will spend the minimum amount on long-term care, there’s a group that will spend $200,000, and there’s a group that will spend an astronomical amount.”