F.46 Eldercare and Special Needs Planning

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1 A. Professional Conduct and Regulation

A.1 Code of Ethics and Standards of Conduct A.1.1 The Six Ethical Principles A.2 Procedural Rules and Discipline A.2.1 Fitness Standards for Candidates A.3 Financial Institutions Overview A.3.1 Broker-Dealers vs. RIAs A.4 SEC and Securities Regulation A.4.1 FINRA and Broker-Dealer Regulation A.4.2 State Securities Regulation A.5 Consumer Protection Laws A.5.1 Privacy and Confidentiality Requirements A.6 Fiduciary Duty and Application

2 B. General Principles of Financial Planning

B.7 The Financial Planning Process B.7.1 Establishing the Client Relationship B.7.2 Gathering Client Data and Goals B.8 Personal Financial Statements B.8.1 Key Financial Ratios B.9 Cash Flow Management B.9.1 Emergency Fund Planning B.10 Debt Management Strategies B.10.1 Mortgage and Home Financing B.11 Economic Concepts B.11.1 Planning for Inflation B.12 Time Value of Money Concepts B.12.1 TVM Calculations and Applications B.12.2 Loan Amortization B.13 Education Needs Analysis B.14 Education Savings Vehicles B.14.1 529 Plans In-Depth B.15 Education Funding Strategies B.16 Gift/Income Tax Strategies

3 C. Risk Management and Insurance Planning

C.17 Principles of Risk and Insurance C.17.1 Risk Management Process C.18 Analysis of Risk Exposures C.19 Health Insurance Fundamentals C.19.1 Types of Health Insurance Plans C.20 Disability Income Insurance C.20.1 Disability Policy Features C.21 Long-Term Care Insurance C.22 Annuities Overview C.22.1 Fixed vs. Variable Annuities C.23 Life Insurance Fundamentals C.23.1 Types of Life Insurance C.24 Business Owner Insurance Solutions C.25 Insurance Needs Analysis C.26 Insurance Policy and Company Selection

4 D. Investment Planning

D.27 Equity Securities D.27.1 Fixed Income Securities D.27.2 Mutual Funds and ETFs D.27.3 Taxation of Investment Vehicles D.28 Systematic Risk D.28.1 Unsystematic Risk D.29 Economic and Market Cycles D.30 Measures of Risk and Return D.30.1 Investment Performance Measures D.31 Asset Allocation Strategies D.31.1 Portfolio Diversification D.32 Bond and Stock Valuation D.32.1 Stock Valuation Models D.33 Investment Policy Statement D.33.1 Modern Portfolio Theory D.34 Active vs. Passive Investing D.34.1 Common Investment Strategies D.35 Alternative Investments D.35.1 Options and Derivatives

5 E. Tax Planning

E.36 Income Tax Fundamentals E.36.1 Filing Status and Tax Brackets E.37 Types of Income E.37.1 Deductions and Credits E.37.2 Capital Gains and Losses E.38 Business Entity Taxation E.38.1 Self-Employment Tax E.39 Taxation of Trusts and Estates E.40 Tax Reduction Strategies E.40.1 Retirement Account Tax Strategies E.41 Property Transactions E.41.1 Basis Rules for Acquired Property E.42 AMT and NIIT E.42.1 Special Tax Situations E.43 Charitable Giving Strategies

6 F. Retirement Savings and Income Planning

F.44 Retirement Needs Analysis F.44.1 Sources of Retirement Income F.45 Social Security Benefits F.45.1 Social Security Claiming Strategies F.45.2 Medicare Planning F.46 Eldercare and Special Needs Planning F.47 Qualified Plan Overview F.47.1 Defined Benefit Pension Plans F.47.2 Defined Contribution Plans F.48 Eligibility and Vesting F.48.1 Coverage and Discrimination Testing F.48.2 Contribution and Benefit Limits F.48.3 401(k) Plan Features F.49 Non-Qualified Deferred Compensation F.49.1 Executive Compensation Plans F.50 Retirement Plan Selection for Businesses F.50.1 Individual Retirement Accounts F.51 Distribution Rules F.51.1 Required Minimum Distributions F.52 Retirement Income Strategies F.52.1 Tax-Efficient Withdrawal Strategies F.53 Business Succession Planning

7 G. Estate Planning

G.54 Property Titling and Beneficiary Designations G.54.1 Beneficiary Designations G.55 Strategies to Transfer Property G.55.1 Lifetime Gifting Strategies G.56 Wills and Estate Documents G.56.1 Powers of Attorney G.56.2 Advance Directives and Healthcare Documents G.57 Federal Gift Tax G.57.1 Federal Estate Tax G.57.2 Generation-Skipping Transfer Tax G.58 Sources for Estate Liquidity G.58.1 Life Insurance for Estate Liquidity G.59 Trust Fundamentals G.59.1 Revocable Living Trusts G.59.2 Irrevocable Trusts G.59.3 Trust Income Taxation G.60 Marital Deduction Planning G.60.1 QTIP Trusts G.60.2 Portability of Estate Tax Exemption G.61 Intra-family and Business Transfer Techniques G.61.1 Family Limited Partnerships G.61.2 GRATs and IDGTs G.62 Postmortem Estate Planning Techniques G.62.1 Disclaimer Planning G.62.2 Estate Tax Elections G.63 Planning for Divorce and Unmarried Couples G.63.1 Estate Planning for Unmarried Couples G.63.2 Planning for Blended Families G.64 Planning for Special Needs and Circumstances G.64.1 Special Needs Trusts G.64.2 ABLE Accounts

8 H. Psychology of Financial Planning

H.65 Client and Planner Attitudes, Values, Biases H.65.1 Money Scripts and Money Attitudes H.65.2 Planner Self-Awareness H.66 Behavioral Finance H.66.1 Cognitive Biases H.66.2 Emotional Biases H.66.3 Heuristics and Mental Accounting H.67 Sources of Money Conflict H.67.1 Couples and Money Conflict H.67.2 Family and Intergenerational Money Conflict H.68 Principles of Counseling H.68.1 Therapeutic Techniques in Financial Planning H.68.2 Professional Boundaries and Referrals H.69 General Principles of Effective Communication H.69.1 Listening and Questioning Skills H.69.2 Managing Difficult Conversations H.69.3 Non-Verbal Communication H.70 Crisis Events with Severe Consequences H.70.1 Death and Divorce H.70.2 Job Loss and Health Crisis H.70.3 Sudden Wealth and Sudden Loss H.70.4 Natural Disasters and Traumatic Events

F.46 Eldercare and Special Needs Planning

Key Takeaways Explain This Topic AI

Nursing home care averages $10,646/month for a private room; assisted living averages $6,129/month

Medicaid's 60-month (5-year) look-back period reviews all asset transfers before application

First-party special needs trusts require Medicaid payback at death; third-party trusts do not

ABLE accounts allow contributions up to $20,000 (2026) without affecting SSI if balance stays under $100,000

The ABLE Age Adjustment Act (2026) raises eligibility age from onset before age 26 to onset before age 46
Last updated: January 2026

Eldercare and Special Needs Planning

Eldercare and special needs planning addresses two critical challenges: managing the substantial costs of long-term care and ensuring that individuals with disabilities can maintain government benefits while receiving supplemental support. Financial planners must understand both the costs involved and the legal strategies available to protect clients and their families.

Long-Term Care Costs

Long-term care represents one of the largest potential expenses in retirement. Understanding current costs helps planners develop realistic funding strategies.

2025 National Average Costs

Type of Care Monthly Cost Annual Cost
Nursing Home (Private Room) $10,646 $127,752
Nursing Home (Semi-Private) $9,277 $111,324
Assisted Living Facility $6,129 $73,548
Home Health Aide $6,677 $80,124
Homemaker Services $6,480 $77,760
In-Home Skilled Nursing $1,000-$4,000 $12,000-$48,000

Regional Variation: Costs vary significantly by state. Nursing home costs range from approximately $175/day in Texas and Louisiana to over $1,000/day in Alaska and California. Semi-private room monthly costs range from $5,639 in Texas to $31,282 in Alaska.

Cost Projection: If long-term care costs continue increasing at their historical rate (approximately 5% annually), a nursing home stay that costs $112,420 today could cost nearly $186,000 in 20 years.

Medicaid Planning

Medicaid is the primary payer for long-term care for those who have exhausted their resources. Understanding Medicaid eligibility rules is essential for effective planning.

Asset and Income Limits (2026)

Category Limit
Individual Asset Limit $2,000
Community Spouse Resource Allowance (CSRA) Up to $162,660
Individual Income Limit $2,982/month
Minimum Monthly Maintenance Needs Allowance Varies by state
The 60-Month Look-Back Period

Medicaid reviews all financial transactions during the 60-month (5-year) period immediately preceding the application date. The purpose is to identify asset transfers made for less than fair market value that would disqualify the applicant.

Example: An applicant who applies for Medicaid on January 1, 2026, would have all financial transactions reviewed back to January 1, 2021.

Transactions That Trigger Penalties:

Gifts to family members (including graduations, birthdays)
Property transferred for less than fair market value
Assets sold below market price
Vehicles donated to charity
Payments to caregivers without formal care agreements

Penalty Period Calculation: The penalty period equals the value of the transferred asset divided by the average monthly cost of nursing home care in that state. For example, if the average cost is $10,000/month and the individual gifted $50,000, the penalty period would be 5 months of Medicaid ineligibility.

State Exceptions to the Look-Back Period

State Nursing Home Look-Back Community Medicaid Look-Back
Most States 60 months 60 months
California 30 months (phasing out by July 2026) None
New York 60 months 30 months (effective March 2025)
Exempt Assets Under Medicaid

Certain assets do not count toward the asset limit:

Primary residence (up to equity limits, typically $713,000-$1,071,000 in 2026)
One automobile
Personal belongings and household items
Irrevocable burial contracts
Term life insurance (no cash value)
Assets in qualifying special needs trusts
ABLE account balances (up to $100,000 for SSI purposes)
Medicaid Spend-Down Strategies

Legitimate Spend-Down Methods:

Pay off mortgage or home improvements
Purchase exempt assets (prepaid funeral, new vehicle)
Pay for home care or medical equipment
Establish a Medicaid-compliant annuity
Fund a special needs trust for a spouse
Pay accumulated debts
Special Needs Trusts

Special needs trusts (SNTs) allow assets to be held for the benefit of an individual with disabilities without disqualifying them from means-tested government benefits like SSI and Medicaid.

First-Party (Self-Settled) Special Needs Trusts

A first-party SNT is funded with the disabled individual's own assets, such as an inheritance, personal injury settlement, or accumulated savings.

Requirements:

Beneficiary must be under age 65 when trust is established and funded
Trust must be irrevocable

Trust must be established by parent, grandparent, guardian, or court (or by the beneficiary if mentally competent)

Medicaid payback required: Upon the beneficiary's death, remaining trust assets must first reimburse Medicaid for benefits paid

Third-Party Special Needs Trusts

A third-party SNT is funded by someone other than the disabled beneficiary, such as parents, grandparents, or other family members.

Key Advantages:

No age restriction (can be established for beneficiaries of any age)
No Medicaid payback required at death
Can be revocable or irrevocable
Remaining assets pass to designated beneficiaries
First-Party vs. Third-Party SNT Comparison

Feature First-Party SNT Third-Party SNT
Funded By Beneficiary's own assets Third parties (family, etc.)
Age Limit Must be under 65 when funded No age restriction
Medicaid Payback Required at death Not required
Revocability Must be irrevocable Can be revocable or irrevocable
Typical Funding Source Inheritance, injury settlement Gifts, bequests
Remainder Distribution Medicaid first, then heirs Per trust terms
Distribution Rules for SNTs

Trustees must follow strict rules to preserve benefit eligibility:

Never pay funds directly to the beneficiary (causes dollar-for-dollar SSI reduction)
Pay third parties for goods and services
Funds should supplement, not replace, government benefits
Cover "special needs" (recreation, education, travel) rather than basic living expenses

2024 Food Expense Rule Change: Effective September 30, 2024, the SSA no longer counts food expenses paid by a third party (including an SNT) as in-kind support and maintenance (ISM). Trustees can now pay for groceries and restaurant meals without reducing SSI benefits.

Pooled Special Needs Trusts

Pooled trusts are established and managed by nonprofit organizations. Individual beneficiaries create sub-accounts within the larger trust.

Advantages of Pooled Trusts
Lower minimums: Accept accounts of any size (vs. $500,000+ at banks)
Professional management: Administered by special needs planning experts
Investment efficiency: Pooled assets provide better investment opportunities
Cost-effective: Lower administration fees than individual trusts
Expertise: Staff stays current on changing benefit rules
Pooled Trust Requirements
Must be established and managed by a nonprofit organization
Can accept first-party or third-party contributions
First-party sub-accounts require state Medicaid payback (though nonprofit may retain some portion)
Must maintain beneficiary's benefit eligibility
ABLE Accounts

Achieving a Better Life Experience (ABLE) accounts provide tax-advantaged savings for individuals with disabilities that began before a specified age.

2026 ABLE Account Limits and Rules

Feature 2025 2026
Annual Contribution Limit $19,000 $20,000
ABLE to Work Additional Contribution $15,060 $15,650
Maximum ABLE to Work Total $34,060 $35,650
SSI Resource Limit $100,000 $100,000
Disability Onset Age Requirement Before age 26 Before age 46

Key 2026 Change: The ABLE Age Adjustment Act raises the disability onset age requirement from before age 26 to before age 46, effective January 1, 2026. This dramatically expands eligibility.

ABLE Account Benefits
Tax-free growth: Earnings grow tax-deferred
Tax-free withdrawals: Qualified disability expenses are tax-free
SSI protection: First $100,000 does not count toward SSI resource limits
Medicaid protection: Account balance does not affect Medicaid eligibility
No Medicaid payback in some cases: If beneficiary dies and Medicaid payback is waived by the state
SSI Interaction with ABLE Accounts
If ABLE balance exceeds $100,000, SSI benefits are suspended (not terminated)
Benefits resume when balance drops below $100,000
Medicaid eligibility continues regardless of ABLE balance
ABLE to Work Provision

Employed ABLE account owners who do not participate in an employer-sponsored retirement plan can contribute an additional $15,650 (continental U.S.) beyond the standard limit. This provision was made permanent under SECURE Act 2.0.

Powers of Attorney and Healthcare Proxies

Comprehensive eldercare planning includes advance directives to ensure decision-making authority is properly delegated.

Durable Power of Attorney for Finances
Authorizes an agent to manage financial affairs
"Durable" means authority continues if principal becomes incapacitated
Should be prepared while client has mental capacity
Springing powers activate only upon incapacity
Healthcare Proxy (Durable Power of Attorney for Healthcare)
Designates an agent to make medical decisions
Activated when principal cannot make decisions
Agent should understand principal's values and preferences
Living Will (Advance Healthcare Directive)
States preferences for end-of-life medical treatment
Addresses life-sustaining measures, artificial nutrition, pain management
Works in conjunction with healthcare proxy
HIPAA Authorization
Permits designated individuals to access medical records
Should be completed alongside healthcare proxy
Can include financial institutions for disability claims