How Healthcare Costs Affect Your California Estate Plan in 2026

Healthcare costs are one of the biggest financial concerns for Californians approaching retirement. The lifetime estimates you see in headlines can feel overwhelming, sometimes reaching six figures or more. But the reality is more manageable than the numbers suggest. What matters for your San Diego estate plan is not the total, but how those costs play out year by year and what steps you can take now to protect your family.

The problem is that most estate plans are built as if your assets will stay the same. They will not. Healthcare spending in retirement gradually reduces the pool of money your trust, will, and beneficiary designations are designed to distribute. Understanding how healthcare costs affect your California estate plan helps you build something that works in real life, not just on paper.

Why Healthcare Costs Should Shape Your Estate Plan

Healthcare spending does not happen all at once. It increases gradually over a retiree’s lifetime, which means your estate plan needs to account for a long, slow draw on assets rather than a single catastrophic expense. Planning for this reality helps protect what you intend to leave your family.

Most retirees spend far less on healthcare each year than the alarming lifetime totals suggest. Research consistently shows that annual out-of-pocket medical costs for retirees are a fraction of the numbers that make headlines. The yearly spending is meaningful, but it is not the financial emergency many people fear.

Here’s why this matters for your estate plan. If you assume you need a massive reserve set aside only for medical expenses, you may over-fund certain accounts or avoid transferring assets into your trust. On the other hand, if you ignore healthcare costs entirely, your trust may be underfunded when your family needs it most.

The question is not “how much will healthcare cost in retirement.” The question is “how should my estate plan respond to the reality of healthcare spending over time.”

How Medicare Fits Into Your California Estate Plan

Medicare covers many routine healthcare costs starting at age 65, but it does not cover everything. Understanding what Medicare pays for and what it does not helps California families plan for the gaps that could reduce their estate over time.

What Medicare Covers (and What It Does Not)

Medicare Part A covers hospital stays, limited skilled nursing facility care, hospice, and some home health services. Medicare Part B covers physician visits, outpatient services, diagnostic tests, and medical equipment. Many retirees also carry Medigap (Medicare Supplement) policies to fill the gaps between what Medicare pays and what they owe out of pocket.

The critical gap is long-term custodial care. Medicare does not pay for ongoing nursing home care, in-home aides who help with daily living, or assisted living facilities. This is the category of healthcare spending that has the biggest potential impact on your estate. When someone needs full-time care and Medicare will not cover it, the money comes from personal assets, long-term care insurance, or Medi-Cal (California’s Medicaid program).

Medicare vs. Medi-Cal: Why the Distinction Matters

Many people confuse Medicare with Medi-Cal. They are very different programs. Medicare is a federal benefits program available to most people age 65 and older, regardless of income or assets. Medi-Cal is California’s needs-based program that can cover long-term care costs, but it has income-based eligibility rules.

California eliminated the Medi-Cal asset test effective January 1, 2024. This was a significant change. Before that date, applicants had to reduce their countable assets below strict thresholds. Now, asset limits are no longer a barrier to Medi-Cal eligibility in California, though income-based share of cost rules and SSI asset limits still apply.

Why does this matter for your estate plan? Because the way your assets are structured, titled, and funded into a trust can affect your family’s options if long-term care becomes necessary. Your estate plan and your healthcare cost strategy should work together, not operate in separate silos.

Five Estate Planning Steps to Address Healthcare Costs in Retirement

You do not need a separate “healthcare estate plan.” You need an estate plan that accounts for the reality of healthcare spending. Here are five steps to make that happen.

Step 1: Review and Update Your Advance Healthcare Directive

Your advance healthcare directive is the document that names someone to make medical decisions on your behalf if you cannot speak for yourself. Under California Probate Code Sections 4700 through 4701, this document must be in writing, signed, dated, and witnessed by two people (or notarized).

If your directive is more than a few years old, review it. Make sure your named healthcare agent is still the right person and that your treatment preferences reflect your current wishes. Include a HIPAA authorization so your agent can access your medical records without delays.

Step 2: Strengthen Your Durable Power of Attorney for Finances

Medical decisions and financial decisions are handled by separate documents in California. Your durable power of attorney for finances (Probate Code Section 4000 et seq.) gives someone you trust the authority to manage your money, pay your bills, and handle insurance claims.

When healthcare costs enter the picture, your financial agent’s role becomes more important. They may need to pay medical providers, file insurance claims, coordinate with Medicare, or manage spending from trust accounts to cover care costs. Make sure your power of attorney includes language that expressly authorizes healthcare-related financial decisions.

Step 3: Reassess Your Trust Funding Strategy

One of the most common estate planning mistakes in California has nothing to do with healthcare. It is the unfunded trust. If your home, bank accounts, or investment accounts are not properly titled in the name of your trust, those assets may go through probate when you pass away.

Healthcare costs add urgency to this issue. If medical expenses reduce your liquid assets over time, the assets remaining in your estate become even more important to protect. Review your trust funding to confirm that the assets you want to pass to your family are actually inside the trust, not sitting outside it where they could be subject to California’s probate process.

Step 4: Update Your Beneficiary Designations

Retirement accounts like IRAs and 401(k) plans do not pass through your trust or your will. They pass by beneficiary designation, which is a separate form you filled out when you opened the account.

If you expect to draw down retirement accounts to cover healthcare costs during your lifetime, the balances your beneficiaries receive could be very different from what you originally planned. Review your designations. Make sure they still match your intentions. Also keep in mind that under the SECURE Act, most non-spouse beneficiaries must distribute inherited IRA funds within 10 years, which may affect your family’s tax planning.

Step 5: Coordinate With Your Financial Advisor

Estate planning and financial planning are two sides of the same coin. Your attorney builds the legal structure. Your financial advisor manages the investments and spending strategy that feeds into it. When healthcare costs are part of the equation, coordination between the two professionals matters more than ever.

Your financial advisor can help project realistic healthcare spending over time. Your estate planning attorney can make sure the legal documents accommodate those projections. When the two professionals communicate, your plan holds together. When they work in isolation, gaps appear.

What Happens When There Is No Healthcare Plan in Your Estate Plan

Without proper healthcare planning documents, California families may face court-supervised conservatorship proceedings, delayed medical decisions, and unexpected probate costs that reduce what beneficiaries receive.

Consider what happens when a family member becomes incapacitated without an advance healthcare directive or financial power of attorney. No one has legal authority to make medical decisions on their behalf. No one can access their bank accounts to pay for care. The family may need to petition the court for a conservatorship under California Probate Code Section 1800, which is expensive, time-consuming, and public.

Without a HIPAA authorization, medical providers may refuse to share information with family members. Without a funded trust, assets may need to go through probate. All of this adds cost and delay at a time when the family is already managing a health crisis.

These are not worst-case scenarios. They are common outcomes for families in San Diego County and throughout California who did not plan for the connection between healthcare and estate planning.

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