A dementia diagnosis doesn’t just change how a person lives — it immediately reshapes their financial future. The core steps families should take are: establish legal authority through a durable power of attorney while the person still has capacity, organize all financial records and accounts in one place, project realistic care costs over the disease’s progression, identify which public benefits apply, and engage an elder law attorney and certified financial planner as soon as possible. The window to act is short, and waiting can permanently close off critical options. Consider a family where a 74-year-old is diagnosed with early-stage Alzheimer’s in 2025.
If he still has the mental capacity to sign legal documents, his family has weeks or months — not years — to get a durable power of attorney in place before that window closes. Without it, they may need to pursue a court-ordered guardianship, which is expensive, time-consuming, and emotionally draining. The financial stakes are real: according to research from the USC Schaeffer Center, the total U.S. cost of dementia reached $781 billion in 2025, with families paying $52 billion out-of-pocket annually in direct medical and long-term care expenses. This article walks through each planning step in detail — from the first legal documents to Medicaid asset protection strategies and the professionals worth hiring.
Table of Contents
- What Are the Most Urgent Financial Planning Steps After a Dementia Diagnosis?
- How Should Families Organize Financial Records After a Dementia Diagnosis?
- How Do You Project and Plan for Dementia Care Costs Over Time?
- What Funding Sources Cover Dementia Care, and How Do They Compare?
- What Is Medicaid Asset Protection Planning and When Does It Apply?
- Which Professional Advisors Should Families Hire After a Dementia Diagnosis?
- The Long-Term Financial Picture for Dementia Families
- Conclusion
- Frequently Asked Questions
What Are the Most Urgent Financial Planning Steps After a Dementia Diagnosis?
The single most time-sensitive step after a dementia diagnosis is establishing a durable power of attorney for finances. Unlike a standard power of attorney, which becomes void if the person loses mental capacity, a durable power of attorney (DPOA) remains valid after incapacity. That distinction is everything in a dementia case. The Alzheimer’s Association is explicit: the DPOA must be created while the person still has legal capacity to understand what they are signing. Once dementia progresses to the point where a court would question that capacity, the document can no longer be validly executed. The DPOA grants a designated agent — typically a trusted family member or attorney — the authority to manage bank accounts, pay bills, apply for government benefits, and make financial decisions on the person’s behalf. Without this document, families cannot legally access accounts even to pay for care.
Alongside the DPOA for finances, families should also create a healthcare proxy or medical power of attorney, an updated will, and potentially a revocable living trust. These documents work together as a legal foundation for managing the years ahead. Alzheimers.gov and the Alzheimer’s Association both list these as the essential first actions following a diagnosis. A common mistake is assuming there is time to address legal documents later, once the situation becomes more pressing. Dementia is progressive, and cognitive decline is not always predictable. A person who is functional and articulate today may not be able to participate meaningfully in legal proceedings in six months. Families should treat the legal planning phase as an emergency task, not a future one.
How Should Families Organize Financial Records After a Dementia Diagnosis?
Once legal authority is established, the next priority is a thorough inventory of all financial accounts, insurance policies, debts, and assets. The National Institute on Aging recommends gathering every account number, policy document, pension statement, and benefit enrollment in one accessible location. The Alzheimer’s Association provides a Financial and Legal Document Worksheet specifically designed to help families do this systematically. The goal is to ensure the designated agent can act without delay — and that no account or benefit goes undetected or unused. The inventory should include checking and savings accounts, retirement accounts such as IRAs and 401(k)s, investment portfolios, real estate holdings, life insurance policies, long-term care insurance if it exists, Social Security benefit information, Medicare and supplemental insurance details, any outstanding debts or mortgages, and employer or pension benefits.
It should also document digital accounts and recurring automatic payments. Many families discover financial complexity they were not fully aware of: automatic bill pay arrangements, joint accounts, beneficiary designations that haven’t been updated in decades. One important limitation: this process can surface hard conversations about estate planning that were previously avoided. Beneficiary designations on retirement accounts and life insurance policies pass outside of a will, so they need to be reviewed independently. A 401(k) that names an ex-spouse or a deceased parent as beneficiary won’t be corrected by a will. The organization phase often reveals these gaps, and addressing them while the person with dementia can still participate — at least in confirming intent — is far better than discovering them after death.
How Do You Project and Plan for Dementia Care Costs Over Time?
Dementia care costs are not static — they escalate significantly as the disease progresses. Early-stage care may involve modest expenses: medication, periodic doctor visits, minor home modifications for safety, and perhaps some part-time in-home assistance. Mid- and late-stage care is a different financial reality altogether. The Alzheimer’s Association emphasizes that financial planning must account for the progressive nature of the disease, with care needs and costs typically increasing in each stage. The national median cost for memory care facilities in 2025 runs approximately $6,988 to $7,505 per month — roughly $90,000 per year — according to A Place for Mom. Nursing home costs are higher: a private room runs around $350 per day, or $127,750 annually; a semi-private room averages $305 per day, or approximately $111,324 per year.
Geography matters substantially. Families in Indiana, Iowa, or Ohio may find memory care options near $4,000 per month, while equivalent care in San Francisco or Manhattan can exceed $10,000 monthly. For a 74-year-old diagnosed today who lives another eight to ten years, the cumulative cost of residential care can run well into seven figures. Planning for these costs requires projecting multiple care scenarios rather than one. A family might map out a base case (home care for three years, then assisted memory care for four years), a longer-care scenario, and a scenario involving early nursing home placement. Running these projections with a financial planner who specializes in eldercare helps identify the funding gap between what assets can cover and what public benefits will need to fill. Without this analysis, families often exhaust savings faster than anticipated and find themselves applying for Medicaid in a crisis rather than from a position of planning.
What Funding Sources Cover Dementia Care, and How Do They Compare?
Medicare is the program most people expect to carry the burden of dementia care, but it falls well short of covering long-term custodial needs. Medicare covers certain medical costs — hospitalizations, physician visits, skilled nursing facility stays following a qualifying hospitalization — but it does not cover the day-to-day personal and custodial care that dementia patients eventually require. Nationally, Medicare pays roughly $106 billion per year toward dementia-related costs, but that primarily reflects acute and skilled medical care, not the ongoing residential and personal care that constitutes most of the long-term expense. Medicaid is the program that actually pays for long-term nursing home and memory care costs for eligible individuals, covering 100 percent of nursing home costs for those who qualify. The catch is that Medicaid eligibility requires meeting strict income and asset limits, which vary by state. To qualify, most of a person’s assets must be spent down, with limited protected amounts. This is where advance planning becomes critically important.
Medicaid imposes a five-year look-back period: asset transfers made within five years of applying for Medicaid can trigger penalty periods during which the person is ineligible for benefits. A family that gives $80,000 to a child a year before applying for Medicaid will face a significant coverage gap. Other funding sources deserve evaluation based on individual circumstances. Long-term care insurance — if purchased before the diagnosis — can cover substantial care costs and is worth reviewing carefully for benefit triggers and elimination periods. Veterans benefits, particularly the VA Aid and Attendance pension, provide meaningful monthly payments to eligible veterans and surviving spouses who require assistance with daily activities. Personal retirement assets, home equity, and annuities may also factor into the funding plan. Each source has different rules, tax treatment, and sequencing considerations, which is why professional guidance in coordinating these resources is worth the cost.
What Is Medicaid Asset Protection Planning and When Does It Apply?
Medicaid asset protection planning is the strategic repositioning of assets to preserve family wealth while still qualifying for Medicaid’s long-term care coverage. The primary tool is the Medicaid Asset Protection Trust (MAPT), an irrevocable trust into which assets are transferred at least five years before a Medicaid application is filed. Assets inside a properly structured MAPT are not counted toward Medicaid’s asset limits, and they pass to designated beneficiaries upon death rather than being consumed by care costs or recovered by Medicaid through estate recovery. The five-year rule is the critical constraint. A MAPT funded in 2026 would protect those assets for a Medicaid application filed in 2031 or later. For a person recently diagnosed with early-stage dementia, there may still be time to use this strategy — but the window is often narrower than families assume, and the trust must be established while the person has the legal capacity to execute it.
An elder law attorney is essential here; the rules vary significantly by state, and poorly structured trusts can create more problems than they solve. A word of caution: Medicaid asset protection planning is not appropriate for everyone, and aggressive asset transfers can backfire. If a person’s assets are modest and they are already near Medicaid eligibility, complex trust strategies may be unnecessary. If assets are substantial and a surviving spouse needs income from those assets to live on, transferring everything to an irrevocable trust may create hardship. The planning must account for the community spouse’s needs — Medicaid has specific protections for spouses who remain at home, including a community spouse resource allowance and minimum monthly maintenance needs allowance. An attorney who focuses exclusively on elder law will know how to navigate these rules in ways that a general estate planning attorney may not.
Which Professional Advisors Should Families Hire After a Dementia Diagnosis?
Two professionals are consistently recommended by every major eldercare organization: a Certified Financial Planner with experience in eldercare and a licensed elder law attorney. Kiplinger, the Alzheimer’s Association, and others emphasize that these advisors should be consulted as early as possible after a diagnosis — not once a crisis has already developed. The CFP can model long-term care scenarios, optimize investment portfolios for the time horizon of care, identify tax deductions for care expenses, and coordinate across different benefit programs. Medical and long-term care costs can qualify for significant federal income tax deductions, but only if properly documented and claimed.
The elder law attorney handles the legal architecture: the durable power of attorney, healthcare proxy, will, trust documents, and Medicaid planning. These are not interchangeable with general estate planning attorneys. Elder law is a specialized field that requires deep familiarity with Medicaid rules, state-specific asset protection strategies, and the legal mechanics of incapacity planning. Some families also work with a geriatric care manager, a professional who coordinates medical care and community services — a practical complement to the financial and legal advisors who handle the money and documents.
The Long-Term Financial Picture for Dementia Families
The financial burden of dementia is not borne by any single payer — it is distributed across Medicare, Medicaid, families, and the vast unpaid labor of caregivers. According to USC Schaeffer Center data from 2025, family members and friends provide 6.8 billion hours of unpaid care annually, valued at $233 billion. This is a cost that never shows up in a family’s budget but extracts an enormous toll in time, income foregone, and career disruption. As planning progresses, families should factor in caregiver burnout, the potential for the primary caregiver to reduce work hours, and the impact on their own retirement savings.
Looking ahead, dementia care policy is evolving. Proposed Medicare expansions, long-term care insurance reforms, and state-level Medicaid innovations may shift the funding landscape in the coming years. Families who plan now — with flexible, updated documents and advisors who monitor benefit changes — will be better positioned to adapt as circumstances and policy shift. The plan made today should be treated as a living document, revisited annually or whenever there is a significant change in the person’s condition, assets, or applicable benefit rules.
Conclusion
Financial planning after a dementia diagnosis is urgent work with a shrinking window. The core priorities are establishing a durable power of attorney while legal capacity exists, organizing all financial records systematically, projecting realistic care costs over the full disease progression, and identifying the right mix of Medicare, Medicaid, long-term care insurance, and personal assets to fund that care. The numbers are sobering — $90,000 or more per year for memory care, and multi-year care needs that can exhaust even substantial savings — but planning early creates options that waiting forecloses.
The families who navigate this best tend to share a few characteristics: they act immediately after diagnosis rather than waiting for a crisis, they hire elder law attorneys and certified financial planners with eldercare experience, and they revisit the plan regularly as circumstances change. The Alzheimer’s Association, the National Institute on Aging, and Alzheimers.gov all offer free worksheets and guidance to help families get started. The plan will not make a dementia diagnosis easier to face, but it can prevent a health crisis from becoming a financial one.
Frequently Asked Questions
Does Medicare pay for memory care or nursing home costs for dementia?
Medicare does not cover long-term custodial care, including memory care facilities or ongoing nursing home stays that are not following a qualifying hospital admission. It covers some skilled nursing facility care on a short-term basis and certain medical costs, but the day-to-day personal care that dementia patients require is not covered. Medicaid is the primary public payer for long-term nursing home care, but it requires meeting asset and income limits.
What happens if a person with dementia has no power of attorney in place?
Without a durable power of attorney, no one has legal authority to manage the person’s finances or make decisions on their behalf. The family would need to petition a court for guardianship or conservatorship, a process that can take months, cost thousands of dollars in legal fees, and require ongoing court oversight. This is why establishing a DPOA while the person still has legal capacity is treated as the most urgent financial planning step after a diagnosis.
How much does memory care cost in the United States in 2025?
The national median cost for memory care facilities in 2025 is approximately $6,988 to $7,505 per month, or roughly $90,000 per year. Costs vary significantly by geography — from around $4,000 per month in lower-cost Midwestern states to more than $10,000 per month in high-cost urban areas like San Francisco and New York City.
What is the Medicaid five-year look-back period?
The Medicaid look-back period is a five-year window during which Medicaid reviews asset transfers made by the applicant. If assets were given away or transferred for less than fair market value within five years of applying for Medicaid, the state can impose a penalty period during which the applicant is ineligible for Medicaid long-term care coverage. This rule is why early planning is essential — asset protection strategies like a Medicaid Asset Protection Trust must be in place well before an application is needed.
Is a living trust necessary after a dementia diagnosis, or is a will enough?
A will alone has limitations in a dementia care context. Assets in a will pass through probate, which is public, potentially slow, and can be contested. A revocable living trust allows assets to be managed by a successor trustee without court involvement — which can be valuable while the person is alive but incapacitated. Whether a trust is appropriate depends on the size and complexity of the estate, state-specific probate rules, and the family’s circumstances. An elder law attorney can assess whether a trust adds meaningful value over a will and properly structured powers of attorney.
What tax deductions are available for dementia care expenses?
Medical expenses related to dementia care — including in-home nursing care, memory care facility costs, adult day services, and certain home modifications — may qualify as itemized medical deductions on federal income tax returns to the extent they exceed 7.5 percent of adjusted gross income. Caregiver families who claim a person with dementia as a dependent may also be eligible for the dependent care credit. A certified financial planner or tax advisor can identify which expenses qualify and structure the documentation to support the deduction.
