How to Protect Family Assets from Nursing Home Cost

According to reports, about 1.4 million Americans reside in nursing homes, and it is expected that the number of people using various long – term care services will grow from 15 million in 2000 to 27 million in 2050. The cost of a private room in a nursing care facility average $7,698 per month—over $92,000 a year.

As a senior, if you don’t have your finances set up properly ahead of time, you could see your financial resources dwindle quickly. And since no one knows when they might suddenly require long – term care, the best time to start preparing for that possibility is now.

Note that dealing with the hardship of out-of-pocket costs is the last thing you need to worry about when experiencing declining health. Planning ahead is the ideal option to protect your assets while maintaining eligibility for programs such as Medicaid.

If your plan is to pass your hard – earned assets on to your children and grandchildren, then you may find that the exceedingly high cost of nursing home care can alter that noble goal. It is quite easy to spend through your assets after experiencing serious health issues requiring long – term care.

Howbeit, the law provides methods for you to protect your assets and keep your family’s future secure. With the experience and expertise of a licensed attorney, you can plan to protect your assets while ensuring access to the care you need.

You may have considered transferring assets to your family now in preparation for Medicaid eligibility down the line, but have it in mind that this approach can actually cause more problems than it solves. Medicaid employs a five-year look-back period that counts all of your assets over the last half – decade.

So note that under this stipulation, giving money to family members or selling assets below market value may result in penalties that force you to wait longer for coverage.

In addition, government – run Medicaid program may step in to cover nursing home costs for low – income individuals, but it is the “payer of last resort.” Eligibility is income – based and, by the time your income qualifies you for these benefits, your assets could be depleted.

When you’ve reached that point, you may have used up your loved ones’ inheritances or even be without financial security yourself if you end up moving out of the nursing home.

Also when a Medicaid recipient dies, in a process called “estate recovery,” the government tries to recover the benefits it had paid out for nursing home care from the decedent’s estate. Through making adequate plans, you can minimize the effects of this process on your loved one’s inheritances.

However, when considering how best to protect your assets from nursing home or Medicaid costs, you must understand its “look – back” provisions, which allow the government to examine asset transfers for a period of five years before the Medicaid application.

If a transfer was not exempt, you may become ineligible for Medicaid for a penalty period. Nonetheless, there are some ways you may be able to protect your assets from nursing home costs. 

6 Ways to Protect Your Family Assets from Devastating Nursing Home Costs

1. Give Monetary Gifts To Your Loved Ones Before You Get Sick

In the United States, some assets are exempt, which means you can transfer them to others as gifts for little or no compensation without penalty—namely, household goods, personal effects, certain prepaid funeral expenses, and income – producing property, and in some cases, your home and retirement accounts.

In the case of Medicaid, any assets you transfer within the five years prior to entering a care facility are subject to seizure after your death. Transferring funds before you fall ill protects your money and ensures your family members can legally keep the gifts they receive.

2. Draft A “Life Estate” For Your Real Estate

With your assets, you may choose to create a life estate so that you keep the right to live in the home until your death as a “life tenant.” At your death, the property transfers to your chosen loved one. Through a life estate, you remain in control of the property until your death, at which point the person or people with the “remainder interest” take possession.

If you create a life estate and transfer real estate, you’ll incur no penalty if you enter a nursing home, provided the transfer occurred at least five years before your illness.

If you enter a nursing home within that five – year window, however, you may incur a financial penalty for transferring property that would otherwise have been available for estate recovery. In addition, with all property transfers, you should also keep an eye on any and all potential tax consequences, including those related to gift, estate, and capital gains taxes.

3. Transfer A Portion Of Your Monthly Income To Your Spouse

In the United States, the Federal Spousal Impoverishment Act protects the spouses of nursing home patients by allowing them to exclude their own income when paying for a spouse’s nursing home care.

If your spouse’s income is less than the amount your state exempts, you can direct a portion of your income to your spouse to bridge the gap. The income you transfer to your spouse for monthly maintenance is exempt income and sheltered under federal law.

4. Use An Irrevocable Trust

Unlike a living trust, an irrevocable trust is exempt from nursing home costs. An irrevocable trust allows you to avoid giving away or spending your assets in order to qualify for Medicaid. Have it in mind that assets placed in an irrevocable trust are no longer legally yours, and you are expected to name an independent trustee.

You may choose to designate that the trust assets to pass to your spouse and/ or other loved ones after your death. You cannot control the trust’s principal, although you may use the assets in the trust during your lifetime. Howbeit, if the family home is an asset in the irrevocable trust and is sold while the Medicaid recipient is alive and in a nursing home, the proceeds will not count as a resource toward Medicaid eligibility.

However, when established for the purpose of protecting assets from being used for nursing home or other long – term care costs, the term “Medicaid trust” may be used to describe this type of irrevocable trust. But note that even an irrevocable trust is subject to the Medicaid five – year look – back period.

5. Place Your Assets And Your Spouse’s Assets Into A “pour – over” Trust

Note that this type of trust protects your assets from seizure while still allowing you access to the money. You can create or modify your wills to include a testamentary trust providing for the welfare of the surviving spouse.

Even though a portion of the funds from the original trust “pour over” into the deceased spouse’s estate, the testamentary trust included in the will protects that money from being seized to pay nursing home expenses. This offers financial protection for both you and your spouse regardless of which of you dies first.

6. Place Liquid Assets Into An Annuity

Annuities are contractual arrangements in which an individual pays a lump sum to receive a future stream of income in return. They are offered in a bewildering variety of forms by commercial financial entities, and can involve poorly understood consequences and costs to the consumer.

Have it in mind that most annuities are inappropriate vehicles for Medicaid planning. But there are annuities that conform to the specific requirements of Medicaid law that can be used to protect all of a couple’s excess resources for the community spouse.

Even though savings are immediately and substantially reduced, the spouse or children income is increased by a more modest but recurring amount. Your at – home spouse or children can either spend that income or reinvest it, effectively recouping all of the assets used to purchase the annuity.

For instance, after the institutionalized spouse enters the facility, the community spouse, acting under the guidance of an elder law attorney, liquidates the couple’s excess resources and uses the funds to purchase a non – assignable, non – transferable annuity that meets all of the requirements of the Deficit Reduction Act of 2005.

Note that when done correctly, there is no transfer penalty and, since the check is payable to the community spouse, the payments received are income to the community spouse and do not in any way affect Medicaid eligibility. Not all asset protection strategies are the right fit for every client.

So it is imperative you talk to an experienced attorney to come up with the best way to keep your assets within the family.