Strategies for protecting assets from nursing home costs

Oftentimes we don’t want anomalies to hinder our daily lives. Especially in our late 80’s and 90’s where the probability of caring events increases. Getting older precisely means to be cared for by others (mainly nursing homes) and without proper planning, it can be a bit difficult to manage financially.

The cost of a nursing home can easily get up to $10,000 – $15,000 monthly. This is why it is necessary to know effective strategies for protecting assets from nursing home costs. Many of us may already have witnessed the painful time of spending our entire savings in nursing homes for providing care to our grandparents or parents.

For most married couples, the cost of nursing homes leaves the other spouse who doesn’t need special care in a very hard financial situation. This is because financial support like social security, pension, and other assets are eventually spent on the cost of healthcare for the spouse.

For individuals like widows and unmarried individuals, the cost of healthcare automatically burdens the family or friends. They have to pledge their assets, access personal financial records to meet financial needs, and watch their heirs deplete in front of them.

You definitely want your assets to be transferred to your kids rather than to the nursing homes. This is why you need to follow some useful strategies to protect your assets when a long-term care event occurs.

How to protect your assets from nursing homes?

We have devised a simple guide for you on how to protect your assets from nursing homes, so stay tuned with us. Since rules for Medicaid vary from one state to another, you may need to see how your state works with Medicaid. Consulting an estate law expert will also help determine the state laws for Medicaid. Some of the effective strategies that you can apply include:

Establishing a trust

If you have elderly individuals at your home with frequent needs of care events, the first thing that you should consider is setting up a Medicaid trust for long-term care insurance. Through a trust, you would be able to own your non-retirement assets such as house, non-qualified annuities, investment accounts, life insurance permanent policies, stocks, and any other asset that does not fall under IRA requirements for which you have to pay the tax.

You can launch a Medicaid trust adhering to the following steps:

  • Establish a trust
  • Transfer all the non-retirement assets from your name to the name of a trust.
  • Assets should be placed in the trust for a minimum of five years.
  • For opening a trust, it is required that the individual requiring the medical treatment should be admitted to the nursing home.
  • When a trust owns assets for more than five years, the assets no longer remain accountable. As long as the assets are placed in the trust for more than five years, the individual automatically qualifies for Medicaid. But the assets outside the trust should be lower than the threshold allowance for assets.
  • Medicaid will then finance the cost of the nursing home for the individual that needs care. The assets will be reserved in the trust for the spouse and other heirs.

Real-life example:

At the age of 84, Stan makes up a Medicaid trust and transfers his cash of $90,000 from his $100,000. When he reaches 90, Stan gets a paralysis attack that requires continuous care and enters nursing care for that reason. Now, since his assets are already in the trust for more than five years, he isn’t required to spend down his $90,000 assets as it makes him qualify for Medicaid. That $90,0000 is preserved now for the spouse, heirs, or any other beneficiary that he may have nominated while making a trust.

Putting your assets in a trust instead of gifting is an effective way of preserving them for long-term planning. It enables the assets to remain safe from the situations where the family members spend the gifted money. Plus, you don’t have the money when you need it instantly for a similar or worse situation.

How Medicaid trusts work

When you transfer your assets to a trust, they are considered irrevocable trusts. This means that you no longer own them. By establishing a trust, you are initiating an entity with its Tax ID to legally own your assets.

This often holds individuals from putting their assets in the trust or establishing a trust against their assets. But they should not because when you put your assets on trust, you still have access with the flexibility as you are a grantor to your assets.

Before we go deep into this, let us discuss some essential terms used in establishing trust.

Grantor: The person owning the assets and now gifting or transferring the assets to the trust. For instance, if you are preserving your assets in the trust, you are the grantor.

Trustee: A trustee is a person who manages the assets in the trust. The individual typically cannot be a grantor. This is because when someone puts the assets in the trust, he designates a trustee (his one or more than one heirs). The trustee will be typically responsible for volunteering himself or herself for managing and carrying out the trust terms.

Beneficiaries: Individuals entitled to receive the assets technically are called beneficiaries. The assets placed in the trust will be granted to the beneficiaries when a grantor passes away. It is just like the beneficiary that is nominated for receiving assets in a will or power of attorney.

Getting back to access your assets in a trust.

Accessing your assets in a trust

When you place your assets to a Medicaid trust as a gift, you typically do not have access to your assets. But as a grantor, you can access the generated income from the assets.

Let’s take an example to understand this.

Linda and Mark have an IRA over an investment account and primary residence with a total value of $200,000. They do not need to supplement their earnings and want them to preserve them for their children.

For this, a Medicaid trust is established by the couple where they put both of their children as co-trustees and transfer their assets (a house and a $200,000 account) in the name of the trust.

If the account of $200,000 produces interest income and dividends, the couple is allowed to receive the generated income from the account. They actually are not allowed to receive the principal portion from the trust assets.

  • Revoke all or part of the trust

As mentioned earlier, your state rule for Medicaid trust may differ. But in most states, estate attorneys can also add trust features that enable a trustee to revoke a portion of the assets in a trust. Keeping the Linda and Mark example ahead, let’s figure out what that means.

Suppose Mark and Linda gift their $200,000 account and house to the trust, but after a few 2 years, an unforeseen medical event occurs and the couple needs to withdraw $50,000 from the trust.

Since the estate attorney has added the feature, the couple can revoke a part of their assets from the trust. The balance amount of $150,000 will continue to work for five years of Medicaid.

Other than initiating the Medicaid trusts, you can perform other strategies for protecting your assets from nursing home costs like:

Long-term care insurance

Another way for protecting your assets from nursing home costs is to get long-term care insurance. But a single medical condition is enough to disqualify you for getting the insurance, as it is not as easy to get care insurance for the long-term.

However, if you want to get this kind of insurance, you need to apply when you are healthy or young enough to qualify and protect your assets. Else, even if you are not younger and also qualify for the insurance, your premiums may be high as compared to the one with less age.

Experts of care insurance providers suggest that you should purchase care insurance while you’re in your mid-50s.

  • Professional Planning

Either you want to protect your assets from nursing home costs through a trust or have care insurance, there are legal ways to do that. But to keep yourself safe from frauds and illegal ways, it is best to consult an attorney with Medicaid and estate law knowledge.

An attorney not only advises you for preparing a trust, living wills, and power of attorney but he can help you with regards to everything involved in making nursing home contracts.

Essentially, it is required to be aware of the clauses before you sign an agreement. Nursing home contracts can easily and quickly deplete your monetary assets. Additionally, it can alter the ability to care financially for your family and loved ones. 

Hire an experienced estate attorney and explore the options of receiving legal help for protecting your assets from nursing home costs.

Recent Posts