Estate planning might sound like a task reserved for the wealthy. In truth, it’s something all of us should do if we want our wishes to be honored and our loved ones to have the resources they need after we're gone. As family caregivers, we may also be tasked with helping our aging parents get—and keep—their financial affairs in order.

This guide for family caregivers breaks down the estate planning process for an aging family member into manageable steps. It also provides guidance based on estate planning and elder law attorney guidance on when and how often we should review and revise our loved ones’ estate plans. For the sake of simplicity, let’s refer to aging family members as “parents.” But it could just as easily be grandparents, aunts, uncles, spouses, cousins, or friends.

Step 1: Talk with parents about their estate plan

Financial conversations with parents can be awkward. We can feel uncomfortable asking questions about an estate that we may stand to inherit a portion of. And our parents can feel like they’re being put on the spot to make big decisions, or regretful that they haven’t accumulated as much as they had hoped. They may also believe that their finances are none of our business. 

So how do we even start this conversation? Ideally, in the spirit of collaboration. Our goal is to help them gather all of the documents they need so they can have a clear view of their entire estate and decide how to distribute it, on their own terms. If they put it off until they’re unable to make sound decisions, someone else will have to make these decisions for them, and their beneficiaries may have to go through a lengthy and costly probate process to sort it all out.

Here are some helpful tips to get the ball rolling:

• Involve siblings and other key family members in the conversation to keep the process transparent for all.
• Roll play the conversation with them before taking it to the parents.
• Start by asking the parents if they’ve given thought to how they want to distribute their assets after they pass.
• Ask if there's a trusted financial or legal advisor that they would like to include in the conversation.

As you’re about to see, there’s a lot to cover. And it’s an emotional subject. So be ready to take a break if anyone starts to get weary or agitated, and come back to it at another time. We don’t have to get everything figured out in one sitting. 

Step 2: Prepare Estate Planning Documents

If our parents haven’t done this already, we can work with them and an estate planning or elder law attorney to draw up six important documents that are typically included in an estate planning package:

• Durable Financial Power of Attorney
• Durable Medical Power of Attorney 
• Advanced Medical Directive
• Last Will and Testament
• Revocable Living Trust
• Irrevocable Trust

This process can take anywhere from a couple of months to a year or more, depending on how quickly we can help our parents gather supporting documents and the attorney’s responsiveness. The National Academy of Elder Law Attorneys (NAELA) offers help finding attorneys who specialize in estate planning.

First, let’s take a look at the purpose and importance of each legal document.

Document 1: Durable Financial Power of Attorney (POA)

This document appoints someone to manage our parents’ finances. The person the Durable Financial POA appoints has the legal authority to make financial decisions on our parents’ behalf, pay their bills, deposit or cash any checks our parents receive, and buy and sell their assets. “Durable” means that the powers granted will continue after our parents are incapable of making their own sound financial decisions. So it’s important to choose someone our parents trust implicitly to act in their best interest. This could be a family member, friend, or legal or financial advisor.

Why appoint a Durable Financial POA?

A Durable Financial POA prevents an undesirable person or entity from accessing our parents’ assets. And it ensures that a capable person is available to make financial decisions, avoiding the need for a court-appointed conservatorship. Without a valid Durable Financial POA, our parents may have difficulty managing their financial affairs successfully. This could potentially lead to a lengthy and costly probate process.

When to appoint a Durable Financial POA for an aging parent?

If our parents start this process while they’re still capable of making sound decisions, they can choose their own trusted POA. If they wait until their capacity is diminished, we may have to petition the court to appoint someone as the conservator of their estate. So our parents will have more say in the matter if they draw up this document sooner rather than later.

Durable Medical Power of Attorney

This document appoints someone to make healthcare decisions on our parents’ behalf if they’re unable to do so. This person has the legal authority to access and share our parents’ health information with care providers, make decisions on treatment options, and may specify end-of-life wishes. Often, a persons’ primary family caregiver is granted Durable Medical POA. Again, “durable” means that the powers granted will continue after our parents are incapable of making their own sound medical decisions.

Why appoint a Durable Medical POA?

The Durable Medical POA prevents an undesirable person or entity from making healthcare decisions for our parents. It ensures that a capable person is available to make these medical decisions, and it instructs our parent’s healthcare providers to consult with this decision-maker on treatment options. Without a valid Durable Financial POA or Advanced Medical Directive, we might struggle to make critical healthcare decisions that align with our parent’s wishes.

When to appoint a Durable Medical POA for an aging parent?

Like the Durable Financial POA, if our parents start this process while they’re still capable of making sound decisions, they’ll have more control over who will be making these important medical decisions for them later in life. If they wait too long, a court-appointed conservatorship may be required.

Document 2: Advanced Medical Directive

An Advance Medical Directive, commonly called a living will, provides specific instructions about our parents’ medical care preferences, especially regarding end-of-life treatments. It does not appoint a decision-maker. Rather, it outlines our parents’ wishes directly pertaining to life-sustaining treatments, pain management, and organ donation.

Why establish an Advanced Medical Directive?

This document becomes effective if our parents develop an incurable condition, as confirmed by their doctor, and are unable to communicate. Together, an Advanced Medical Directive and a Durable Medical POA  provide a more complete picture of our parents’ healthcare wishes and increase the likelihood that their preferences will be followed.

When to establish an Advanced Medical Directive

Our parents should start this process while they’re still capable of making sound decisions. 

Document 3: Last Will and Testament

A Last Will and Testament, commonly known as a Will, is a legal document that details how to pay a person’s final expenses after they pass away and distribute their property and assets to beneficiaries they have named. The Will usually appoints an executor. This is the person responsible for making sure wishes are carried out as specified. Typically, only an original will can be formally probated, so it should be kept in a safe place, accessible to the executor.

A will can be as specific or general as desired. Our parents can choose to leave everything to one person or divide their estate among several beneficiaries, specifying particular items or sums of money (called bequests) for each. They might also choose to leave money or possessions to a charity. Additionally, their Will can include instructions for the care of any dependents (i.e. children under 18) or pets.

When they die, their estate goes through a process called probate. This is when their will is filed with the state for processing. Their assets can’t be distributed until the probate process is complete. Probate requires legal representation, which can cost thousands of dollars. For some estates, probate can also be extremely time-consuming, often taking months or even years. 

That said, not all states require all estates to go through probate. Some states only require it for larger estates. And not all assets are included in probate in every state. There are also steps you can take to avoid probate in just about every state. 

Why draw up a Last Will and Testament?

Creating this document ensures that our parents’ assets are distributed according to their wishes and can help prevent disputes among family members or other beneficiaries. It also ensures a capable executor is available to distribute the estate without delay.

When to draw up a Last Will and Testament?

As with all estate planning documents, it’s best to start drawing up the Will while our parents are still capable of making sound decisions. If our parents created a will years ago, it’s important to review it to ensure all of the beneficiaries named in it are still desirable, add any intended beneficiaries who may have been left out, and keep the list of assets current. If our parents need to make changes to their Will, they can add an amendment called a codicil. Or they can create a new will that replaces the old one. 

Document 4: Trusts

A Living Trust is a legal document that allows a person to transfer ownership of their assets to an account for purposes like estate planning. The person who establishes the trust is the grantor. The grantor appoints a trustee to manage the assets in the trust for the benefit of the beneficiaries—those who will receive the assets in the trust. The assets can be distributed either after the grantor’s death or at a time the grantor chooses.

A trust document outlines the Living Trust’s purpose, the types of assets it holds, the duties of the trustee, the beneficiaries who will receive the assets, and instructions for when the assets will be distributed.

A significant advantage of a Living Trust is that it bypasses probate court, enabling beneficiaries to access assets immediately after the grantor's death.

There are two types of living trusts: revocable and irrevocable, each offering unique benefits.

Revocable Living Trust

A Revocable Living Trust is popular for estate planning because it allows the grantor to retain control of the trust and make changes as needed during their lifetime. The grantor can add or remove assets, change beneficiaries, or revoke the trust entirely. The grantor may act as the trustee or appoint another person.

Since the grantor maintains control over the assets in a revocable living trust, these assets are included in the estate for tax purposes. So when assets are distributed, beneficiaries are required to pay estate taxes on them.

Why draw up a Revocable Living Trust?

With a Revocable Living Trust in place, our parent’s assets are protected against litigation and avoid a costly, lengthy probate process. Putting assets in a trust also minimizes estate taxes that beneficiaries will have to pay when they receive the assets.

When to draw up a Revocable Living Trust?

If our parents don't have one already, we should work with them and an estate planning or elder law attorney to create a Revocable Living Trust while our parents are still capable of making sound decisions. If a trust already exists, we should review it with our parents to make sure the beneficiaries listed are still desirable and no intended beneficiaries have been left out.

We should also confirm that all of our parents’ assets have been transferred to the trust, e.g.: if our parent owns property, the trust should be listed on the deed to that property. The same is true for the title on their car. Depending on the state they live in, their life insurance policy should list the trust as the owner or beneficiary—we should consult their insurance broker on the laws in our parents’ state. Bank accounts should be renamed with the name of the trust. A trust only protects the assets that have been transferred into it.

Irrevocable Trust

Once an Irrevocable Trust is established, it cannot be altered or revoked. When assets are transferred to the trust, the grantor relinquishes control, and a third party acts as the trustee. The terms of the trust and access to its assets cannot be changed unless specific conditions are met. For example, changes can only be made if all beneficiaries agree. The trust can be terminated if all assets are distributed and the cost of maintaining the trust outweighs its value.

Why draw up an Irrevocable Trust?

That loss of control over assets sounds scary, but the benefits of an irrevocable trust can make them well worth letting go of the reins.

Medicaid spend-down protection: In order to qualify for Medicaid, a person has to meet strict income and asset limits determined by each state. If our parents’ income and assets exceed those limits, they will need to “spend down” the excess income/assets on health care expenses until they meet the limit. By placing some bank accounts, brokerage accounts, CDs, bonds, IRAs, etc. into an irrevocable living trust, we can protect those assets from the spend down process. This enables our parents to access Medicaid benefits without having to spend all of their savings first.

Protection from creditors: If the grantor can’t repay a loan, creditors can’t access the assets within the trust. The specifics of this protection vary by state, so it’s wise to consult with a local estate attorney on this point.

Estate tax benefits: Assets in an irrevocable trust are no longer considered part of the grantor's estate, which may provide estate tax benefits. As of 2023, federal estate taxes apply only to estates exceeding $12.92 million. State-specific estate taxes vary, with different exemption amounts and rates depending on the state.

Protection from litigation and probate: Similar to Revocable :Living Trusts, Irrevocable Trusts protect assets from litigation and probate.

When to draw up an Irrevocable Trust?

Timing on setting up this trust is crucial. When our parents apply for Medicaid, the government will review their financial transactions within the last five years. This is referred to as the five-year look-back, and is intended to prevent people from transferring assets quickly to qualify for Medicaid benefits.

If the trust is established within that look-back period, our parent’s Medicaid application will be denied, and they may face a penalty period during which they can’t re-apply for Medicaid. So they’ll have to pay out-of-pocket for any long-term care expenses until they reapply and are accepted. The penalty period varies by state and depends on the value of the assets in the trust. The higher the value of the assets, the longer the penalty period. Basically, Medicaid says, “You have enough in this trust to cover X months of nursing home care in your area. So you’ll have to pay for your own nursing home care for that many months before you can apply to Medicaid again.”

With this in mind, it’s wise to establish an irrevocable trust at least five years before we expect our parents to need Medicaid to cover any long-term care costs. For example, if they have a long term care insurance (LTCI) policy that has a benefit period of five years, they should establish this trust as soon as—or ideally, before—they need to start claiming their LTCI benefits. That way, they can apply for Medicaid when their LTCI policy ends.

A critical note: Trusts aren’t the only thing that the government will be looking at during the look-back period. Other look-back period violations include:
• Giving money as a gift
• Buying expensive gifts for others
• Paying for someone else’s education, including family members
• Contributing to an education fund
• Paying off other’s debts
• Paying for other’s rent or mortgage
• Paying for other’s insurance or medical bills
• Buying someone else a vehicle
• Covering travel expenses for someone else
• Loaning money
• Transferring ownership of a home
• Transferring ownership of a vehicle
• Donating a vehicle or other valuable items to charity
• Giving money to charity
• Church tithing
• Contributing to political candidates or causes
• Selling items at less than market value

Step 3: Consider Insurance Options

Effective estate planning also involves considering life insurance and long-term care insurance. Both can provide financial security and support for our parents and their loved ones.

Life Insurance

A life insurance policy can provide financial security for our parent’s chosen beneficiaries. The policy’s death benefit can be used to:

• Cover the costs associated with end-of-life care and probate.
• Pay off debts our parent may still owe
• Cover estate taxes and other expenses
• Provide for the ones they leave behind

What many people don’t know is that some of a life insurance policy’s death benefit may be accessible before death.

Some policies offer an accelerated death benefit that allows the policy holder to access a portion of their death benefit if they’ve been diagnosed with a terminal illness. They can use this to cover their care costs while they’re still alive, including paying a family member who’s caring for them.

Alternatively, our parents may opt to sell their life insurance policy to a third party for less than the policy’s death benefit via a viatical settlement or life settlement. The proceeds from the sale can cover their care costs, including paying a family caregiver.

Long-term Care Insurance

Only about 3% of Americans over age 50 own a long-term care insurance (LTCI) policy. And that’s unfortunate, because this kind of insurance can protect our assets and ensure we get the care we need as we age. LTCI helps cover the cost of long-term care services which are not typically covered by regular health insurance or Medicare. How much do these long term care services cost? Here are the average costs for various care scenarios in the U.S. in 2024:

• Assisted living facility: over $59,000/year + fees for actual assistance
• Memory care: over $83,000/year
• Nursing home: over $108,000/year
• Home health aide at 44 hours/week: nearly $60,000 annually

And, these costs are rising. The good news is that even if our parents are in their 70s, they may still be able to purchase a LTCI policy. The younger and healthier they are when they initiate the policy, the lower their annual premium will be. But even a less expensive policy that can cover a portion of their long term care costs could help ease their financial hit.

Pro tip: Ask an insurance broker if they sell any LTCI policies that pay “informal caregivers” (a.k.a. family caregivers) to provide care.

Step 4: Review and Update Documents and Policies

Once we get our parents’ estate ducks in a row, we can breathe a collective sigh of relief. But this isn’t a set-it-and-forget-it situation. Their documents may require changes over time. It’s smart to review estate documents and insurance policies every 3-5 years or after significant life changes. Some of the events that should trigger a review, and reasons to make updates, are below.

Marriage and divorce

• To include a new spouse
• To include or exclude step-children in blended families
• To remove an ex-spouse or partner from estate documents

Birth and adoption

• To include a new child or grandchild, whether by birth or adoption, as a beneficiary

Death

• To name a new agent, trustee, executor, or beneficiary if the original agent, trustee, executor, or beneficiary has passed away

Changes in Assets

• To reflect the acquisition or sale of assets like real estate, collections, or business ownership
• To transfer new assets into trusts

Relocation

• To ensure estate documents comply with the laws of a new state or country
• If a home is purchased, to name the trust in the deed

Changes in Laws and Taxes

• To review estate documents with an attorney to ensure they comply with current laws
• To review trust documents with an accountant for maximum tax benefits

Why Estate Planning is Important for Family Caregivers

By following the guidelines above, we can help ensure that our parents’ wishes are met, their assets are protected, and their loved ones are provided for. If we’re a beneficiary of their estate, the benefit of this process is clear. And if, like many family caregivers, we have to sacrifice a paying job to provide this care, we may need the financial cushion that an inheritance can provide as we navigate workforce reentry and resume saving for our own retirement. According to a MetLife study, women who leave the workforce early to care for a loved one lose, on average, $142,693 in wages and $131,351 Social Security benefits.

The other benefit of working through this process with our parents is that it prepares and inspires us to get our own estate planning ducks in a row. Then that’s one less thing to worry about in our own retirement.

At RubyWell, we’re paving a path to financial stability for all family caregivers. Our Family Leave Finder provides state-by-state info on family leave laws. Soon, family caregivers will be able to make the most of a loved one’s health insurance benefits with our Medicare Advantage Benefits Navigator. And we're developing compensation solutions so that every family caregiver can be a paid caregiver. If you’d like to be among the first to hear about product releases, join our waiting list.

I hope this article has been helpful for you. Feel free to share it with family or friends who are caring for aging family members.

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