When your loved one receives a dementia diagnosis, the emotional weight can feel crushing. But alongside the grief and fear, another reality quickly surfaces: dementia care is expensive, and without a financial plan, families can face devastating costs and difficult decisions under pressure.
Financial planning for dementia care means taking stock of your loved one's resources now, understanding what costs are coming, and putting legal and financial protections in place while your loved one can still participate in decisions. The earlier you start, the more options you'll have and the less likely you'll face a financial crisis later.
Here's what to do right now:
- Gather all financial documents and account information
- Schedule a meeting with an elder law attorney to establish essential legal documents
- Calculate monthly income versus projected care costs
- Research what Medicare and insurance actually cover
- Start a shared tracking system so the whole family can see expenses and decisions in one place
Key Takeaway:
Financial planning for dementia isn't about having all the answers today. It's about organizing what you have, protecting your loved one's assets legally, and understanding costs early so you can make informed decisions over time instead of scrambling in a crisis.
Why Financial Planning Matters More with Dementia Than Other Conditions
Dementia is different from most chronic illnesses because it's progressive, long-lasting, and eventually requires around-the-clock supervision. A person may live 8 to 12 years or more after diagnosis, and care needs increase gradually over that time.
Unlike a short hospital stay or a few months of rehab, dementia care costs compound year after year. Early planning helps you stretch resources, qualify for benefits you might otherwise miss, and avoid spending down assets in ways that disqualify your loved one from Medicaid if they need it later.
Most importantly, financial decisions like signing power of attorney, updating a will, or creating a trust require legal capacity. Once dementia progresses, your loved one may no longer be able to sign these documents, leaving the family with expensive guardianship proceedings or limited access to funds when bills come due.
Step 1: Gather and Organize All Financial Information
You can't make a plan if you don't know what you're working with. The first step is to collect a complete picture of your loved one's finances.
Start by locating these key documents and accounts:
- Bank account statements (checking, savings, money market)
- Investment and retirement accounts (401k, IRA, brokerage accounts, pensions)
- Social Security statements and benefit amounts
- Real estate deeds and mortgage information
- Insurance policies (health, life, long-term care, annuities)
- Income sources (pension payments, rental income, veteran benefits)
- Debts and monthly obligations (mortgage, credit cards, loans, subscriptions)
- Tax returns from the past two years
- Existing legal documents (will, trust, power of attorney, advance directives)
If your loved one is still in early-stage dementia, involve them in this process. Sit down together and go through file cabinets, safe deposit boxes, and online accounts. Many people have accounts or policies they've forgotten about.
Create a master list with account names, numbers, balances, and where to find login information. Tools like CareThru can store this information securely and share it with trusted family members so everyone has access when needed.
Step 2: Understand What Dementia Care Actually Costs
Dementia care costs vary widely depending on where you live and what type of care your loved one needs. But it helps to understand the general ranges so you can plan realistically.
Early stage (1 to 3 years after diagnosis)
Costs are relatively low. Your loved one may still live independently or with minimal help. Expenses might include medications ($100 to $400/month), occasional home health aide visits ($25 to $35/hour), and adult day programs ($75 to $150/day).
Middle stage (years 3 to 7)
Supervision becomes necessary, and costs rise significantly. Options include hiring in-home caregivers ($4,000 to $8,000/month for part-time help), assisted living with memory care ($4,500 to $7,000/month), or moving in with family (which has hidden costs like lost income and home modifications).
Late stage (years 7+)
Full-time care is required. Memory care facilities range from $5,000 to $10,000+ per month depending on location. Skilled nursing facilities cost $7,000 to $12,000+ per month. In-home care around the clock can exceed $15,000 per month.
These are national averages; costs in major metropolitan areas can be 30% to 50% higher. Use online calculators and call local facilities to get pricing specific to your area.
Step 3: Know What Medicare and Insurance Do (and Don't) Cover
Many families assume Medicare will cover dementia care. It won't, at least not the way you might hope.
Medicare covers:
- Doctor visits and diagnostic testing
- Medications (through Part D, with copays)
- Short-term skilled nursing (up to 100 days after a hospital stay, with conditions)
- Limited home health visits for skilled medical needs (not custodial care)
- Hospice care in the final stages
Medicare does NOT cover:
- Long-term custodial care (help with bathing, dressing, eating, supervision)
- Memory care facilities or assisted living
- Full-time in-home caregivers
- Adult day programs
Private health insurance generally follows the same limitations. Long-term care insurance (if your loved one has it) is the exception. If a policy exists, find it now, review what it covers, and understand the benefit triggers and waiting periods.
If there's no long-term care insurance, the family will pay out of pocket until assets are spent down enough to qualify for Medicaid.
Step 4: Set Up Essential Legal Documents Before It's Too Late
This is the most urgent financial step. Legal capacity is required to sign these documents, and once dementia progresses past early stages, it may be too late.
You need these documents in place as soon as possible:
- Financial power of attorney (POA): Allows a trusted person to manage bank accounts, pay bills, file taxes, and make financial decisions. Without this, family may need expensive guardianship.
- Durable healthcare power of attorney: Designates someone to make medical decisions if your loved one can't communicate their wishes.
- Advance directives (living will): Specifies preferences for end-of-life care, including wishes about resuscitation, feeding tubes, and hospice.
- HIPAA authorization: Allows healthcare providers to share medical information with designated family members.
- Will or revocable living trust: Ensures assets are distributed according to wishes. A trust can also help avoid probate and manage assets if incapacitated.
Schedule an appointment with an elder law attorney who specializes in dementia and Medicaid planning. Bring your financial documents, a list of family members who might serve as POA or trustee, and questions about protecting assets.
Many families wait too long on this step. If your loved one is still able to understand what they're signing (even if they're forgetful), get these documents done this month.
For comprehensive guidance on legal planning, see our legal planning after dementia diagnosis guide.
Step 5: Calculate Monthly Income vs. Projected Care Costs
Now that you know what your loved one has and what care costs, do the math.
List all monthly income sources:
- Social Security
- Pension payments
- Investment withdrawals
- Rental income
- VA benefits
- Any other regular income
Then estimate monthly care costs based on current and near-future needs. If your loved one is in early-stage dementia and living at home, costs might be just a few hundred dollars a month now. But project forward: what happens in two years when they need daily help? In five years when memory care might be necessary?
Subtract monthly costs from monthly income. If there's a gap, you'll need to draw from savings or investments. Calculate how long those assets will last at different spending levels.
This exercise isn't meant to scare you. It's meant to help you see the runway you have and make proactive decisions (like applying for VA Aid and Attendance, selling a second property, or researching Medicaid planning) before money runs out.
Step 6: Understand Medicaid and When to Plan for It
Medicaid (called Medi-Cal in California) is the safety net that pays for long-term care when someone has spent down their assets. Most people with dementia will eventually rely on Medicaid unless they have significant wealth or long-term care insurance.
Medicaid has strict income and asset limits
In most states, an individual can have no more than $2,000 in countable assets (the limit varies by state). A home, one vehicle, and certain personal items are usually exempt.
Here's what makes Medicaid planning complicated: Medicaid has a five-year "look-back" period. If your loved one gave away money or assets in the five years before applying, Medicaid can impose a penalty period during which benefits are denied.
This is why families need to talk with an elder law attorney early. If your loved one is in early-stage dementia and has assets above the Medicaid limit, an attorney can help structure spending, create certain trusts, or make compliant transfers that protect some assets for a spouse or family while still allowing Medicaid eligibility later.
Do not try to do Medicaid planning on your own by Googling strategies. The rules are state-specific and complicated, and mistakes can result in losing eligibility or facing penalties.
Step 7: Consider Long-Term Care Insurance and Other Funding Options
If your loved one already has long-term care insurance, contact the insurer now to understand the policy details: daily benefit amount, how long benefits last, what triggers coverage, and whether there's a waiting period.
Submit a claim as soon as your loved one meets the benefit triggers (usually needing help with two or more activities of daily living, or cognitive impairment requiring supervision). Don't wait until you're in crisis mode.
Other funding options to explore:
Veterans benefits (Aid and Attendance):
If your loved one is a wartime veteran or surviving spouse, they may qualify for VA Aid and Attendance, which provides extra monthly income to help pay for care. The application process takes months, so start early.
Life insurance conversions:
Some life insurance policies allow you to access the death benefit early if the insured has a terminal or chronic condition. Look into viatical settlements or accelerated death benefits.
Reverse mortgage:
If your loved one owns a home and is 62 or older, a reverse mortgage can provide cash while they continue living there. This is complex and not right for everyone, so consult a financial advisor and attorney.
Nonprofit and community programs:
Some areas have subsidized adult day programs, respite grants, or volunteer companion services. Contact your local Area Agency on Aging to learn what's available.
Step 8: Plan for Income Taxes and Required Distributions
Dementia doesn't pause tax obligations. In fact, financial complexity often increases.
If your loved one has retirement accounts (401k, traditional IRA), required minimum distributions (RMDs) must begin at age 73 (or 72 if born before 1951). Missing an RMD triggers a steep penalty. Make sure the person managing finances (through POA) knows when distributions are due and takes them on time.
Keep good records of all care-related expenses. Some may be tax-deductible as medical expenses if they exceed a certain percentage of adjusted gross income. This includes payments to caregivers, memory care facilities, home modifications for safety, and mileage driven for medical appointments.
If the financial POA is a family member who isn't experienced with taxes, consider hiring a CPA or enrolled agent who specializes in elder care and taxes. The cost is worth avoiding mistakes that could trigger audits or penalties.
Step 9: Protect Against Financial Exploitation and Scams
People with dementia are at high risk for financial abuse, often from strangers but sometimes from family members or "friends" who take advantage of confusion.
Put these protections in place now:
- Set up account alerts for withdrawals over a certain amount
- Add a trusted contact to bank and investment accounts who will be notified of suspicious activity
- Remove your loved one from mailing lists that target seniors with scams
- Consider limiting access to checkbooks, credit cards, and online banking as dementia progresses
- Monitor accounts regularly for unusual transactions
Talk with your family openly about money and who has access. Financial abuse often happens in secret because no one is watching.
Step 10: Decide How to Split Costs Among Family Members
Dementia care is expensive, and it's not always clear who should pay for what. These conversations are uncomfortable but necessary.
Start by clarifying your loved one's resources and whether they're sufficient. If they are, the family isn't paying; your loved one's assets are. The POA manages spending on their behalf, but it's not the family's money.
If your loved one's resources aren't sufficient and adult children need to contribute:
Consider:
- Each sibling's financial situation
- Whether one sibling is providing hands-on care (which has value even if not financial)
- Whether your loved one supported some children more than others in the past
- What feels fair and sustainable long-term
Document any financial agreements in writing, especially if one sibling is fronting money with the expectation of being reimbursed later from an inheritance. Misunderstandings about money destroy families during caregiving.
If siblings can't agree, a neutral mediator or family therapist can help facilitate the conversation.
Step 11: Use a Shared System to Track Spending and Decisions
Financial planning isn't a one-time event. It's ongoing. You'll need to track spending, update family members, document decisions, and adjust the plan as your loved one's needs change.
Many families use a combination of tools: a shared spreadsheet for monthly budgets, a binder for legal documents, and a calendar for payment due dates. This works, but it requires discipline and can still lead to confusion when multiple people need access.
When the whole family can see the financial situation clearly, it reduces suspicion and conflict. Everyone knows what's being spent and why, and the person managing finances doesn't have to field constant questions.
Looking Ahead: Adjusting the Plan as Needs Change
Your financial plan will need to evolve as dementia progresses. What works in year one won't work in year five.
Plan to reassess every 6 to 12 months:
- Is your loved one's care level increasing faster or slower than expected?
- Are current expenses sustainable, or is spending outpacing income?
- Is it time to apply for Medicaid or VA benefits?
- Do you need to sell assets (a home, a car) to cover costs?
- Are siblings still contributing as agreed, or does the arrangement need adjustment?
The goal isn't to predict every future need perfectly. It's to stay informed, adjust as you go, and avoid making desperate decisions under financial pressure.
For comprehensive early planning guidance, see our first 90 days after dementia diagnosis checklist.
How CareThru Can Help You Manage Dementia Care Finances
Financial planning for dementia care involves a lot of moving parts: documents, accounts, bills, care costs, family communication, and legal deadlines. Keeping it all organized in your head or across multiple notebooks and spreadsheets is overwhelming.
Centralize everything: Store copies of financial and legal documents, so when someone asks "Do we have POA?" you don't have to dig through file cabinets.
Log monthly expenses: Track spending by category, making it easier to see patterns, prepare for tax time, or show family members where money is going.
Share with family: CareThru's shared access means everyone sees the same information. Post updates, share decisions, and track who's responsible for what.
Track care tasks: Schedule attorney appointments, renew insurance policies, submit benefit applications. Get reminders so deadlines don't sneak up on you.
Reduce conflict: Transparency reduces suspicion and ensures nothing falls through the cracks.
The goal is simple: less time hunting for documents and answering questions, more time focusing on what matters.
Frequently Asked Questions About Financial Planning for Dementia Care
How much does dementia care cost on average?
Dementia care costs depend on the stage and type of care needed. Early-stage care at home might cost a few hundred dollars monthly, while middle-stage memory care averages $5,000 to $7,000 per month, and late-stage nursing home care can exceed $10,000 per month. Costs vary significantly by location, so research options in your area for accurate estimates.
Does Medicare pay for dementia care?
Medicare covers medical services like doctor visits, diagnostic tests, and medications, but it does not pay for long-term custodial care such as memory care facilities, in-home caregivers, or help with daily activities. Most families pay out of pocket or through long-term care insurance until assets are spent down enough to qualify for Medicaid.
What legal documents do I need for financial planning with dementia?
Essential documents include financial power of attorney, healthcare power of attorney, advance directives, HIPAA authorization, and a will or trust. These must be signed while your loved one still has legal capacity, so meet with an elder law attorney as soon as possible after diagnosis to get these in place.
When should I start Medicaid planning?
Start as early as possible, ideally soon after diagnosis. Medicaid has a five-year look-back period, meaning any asset transfers or gifts made within five years of applying can result in penalties. An elder law attorney can help structure your loved one's finances to preserve some assets while maintaining future Medicaid eligibility.
Can I get paid for taking care of my parent with dementia?
In some cases, yes. If your parent has long-term care insurance, some policies allow family members to be paid caregivers. Medicaid also offers programs in certain states that pay family caregivers. Additionally, if your parent is a veteran, VA Aid and Attendance benefits can sometimes be used to compensate family members providing care. Consult an elder law attorney to explore options.
How do I talk to my siblings about splitting dementia care costs?
Start by presenting a clear picture of your loved one's income, assets, and projected care costs. Be honest about your own financial limits and ask siblings to share theirs. Discuss what's fair based on each person's situation and contribution (financial or hands-on care). Document any agreements in writing, and consider using a mediator if emotions run high or disagreements arise.
What happens if we run out of money for dementia care?
If your loved one's assets are depleted, Medicaid becomes the primary option for paying for long-term care. Medicaid covers nursing home care and, in some states, assisted living or home care services. You'll need to apply through your state's Medicaid office and meet income and asset limits. An elder law attorney can help navigate the application process.
Should I sell my parent's house to pay for dementia care?
This depends on your loved one's financial situation, whether they might return home, and Medicaid planning considerations. A home is often an exempt asset for Medicaid eligibility, so selling it prematurely could affect benefits. Talk with an elder law attorney before making this decision to understand the implications for taxes, Medicaid, and long-term financial security.
Disclaimer: This article provides general information about financial planning for dementia care and is not a substitute for professional legal, financial, or medical advice. Laws and benefits vary by state, and individual circumstances differ. Consult with an elder law attorney, financial advisor, and your loved one's healthcare team to make decisions appropriate for your situation.
Sources
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