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Nursing home stays and long-term care can cost well over $100,000 per year. To pay for it, families often have to liquidate their assets either to raise cash or to meet Medicaid’s spend-down requirements. If you want to protect your assets against this result, long-term care insurance could be your best option. But if this type of coverage isn’t available to you, you may need to look to Medicaid and consider shielding your assets from the program’s strict requirements.
A financial advisor can help you plan for retirement, including your long-term care needs.
Can a Nursing Home Take Your Assets?
A nursing home cannot unilaterally seize your assets. In certain cases, if you fail to pay your bills a facility might sue and obtain a judgment for payment, which can lead to liens, garnishment or seizure, but that’s a separate legal process. On its own, a nursing home cannot simply take property from you.
It can seem that way, though. A private room in a nursing home is projected to cost over $118,000 per year in 2024, according to Genworth, an insurance company that offers long-term care coverage. Unless you have insurance, it’s common for households to sell major assets like real estate and long-term investments to pay for this care.
This isn’t always a bad option. Many people need lifelong care when they move into a nursing home. They will not need major assets like their family home anymore, so these can be a good way to pay for nursing home expenses. A financial advisor can help you plan and save for these expenses.
It isn’t always a good option, though. There are many reasons why you might need to protect your assets from the costs of a nursing home. Perhaps only one spouse needs to move into the facility, for example, or you want to leave assets to your family as an inheritance. Whatever your reason, it’s worth exploring how to do so.
Paying For a Nursing Home
It’s important to remember that most nursing home care is considered “custodial care” – non-medical personal care, including bathing, dressing and help with other daily tasks. As a result, health insurance plans typically don’t cover nursing home care. Medicare will only cover these costs when care at a skilled nursing facility is medically required.
Aside from simply having cash on hand, the two most common ways to pay for a nursing home are long-term care insurance and Medicaid.
Long-Term Care Insurance
Long-term care insurance is a specific form of coverage that pays for residential or in-home care. This may include homemaker services, home health aides and nursing home stays.
At age 60, annual premiums for long-term care insurance typically range from $900 to $3,690 for men and $1,500 to $6,400 for women, according to the American Association for Long-Term Care Insurance. This is typically the best way to protect your assets from the costs of a nursing home.
That said, like most insurance, these policies may restrict new coverage. Most notably, a standard long-term care policy likely will not approve someone who’s in imminent need of residential care. The upshot is that long-term care is a good option when planning, but may not be effective if you currently need of immediate care.
Medicaid
Medicaid is the most common option for households with a current need for nursing home care but without the resources to pay for it pay out of pocket. Unlike Medicare, Medicaid will pay for residential care like a nursing home. The coverage is typically basic with few, if any, comforts. But the program does cover the cost of room, board, medications and other expenses.
Qualifying for Medicaid
To qualify for Medicaid, you must have limited assets and income. While each state runs its programs with its own set of rules, all require some form of limited household resources. For example, in New York an individual must have no more than $30,182 in total assets and $1,732 per month in income to qualify for nursing home coverage.
Each state treats property differently. For example, a given state may or may not include personal property, valuables and motor vehicles as part of the household’s overall assets. However, the biggest difference is the primary residence. States may exempt your home from Medicaid’s asset requirement in whole or in part depending on issues such as whether you have a spouse still living in the house, whether the state has a home equity exemption and if you intend to return to the home.
A state Medicaid program may also put a posthumous lien against your home through what’s called estate recovery, meaning that after your death they will seek to recover costs of care by potentially selling your house. This is a federal law that applies generally.
A financial advisor may be able to help you plan for Medicaid. A certified Medicaid planner (CMP), for instance, is an advisor who’s specifically trained to help you assess your needs and develop a strategy for potentially qualifying.
Medicaid Lookbacks And Spousal Transfers
For a household with significant assets – for example, $800,000 in investments and a paid-off home – Medicaid’s rules can create significant issues. These assets would be well above any particular state limits, so you would need to strategically spend them down to qualify for coverage. Typically this can be done in several different ways, including intra-family transfers, Medicaid annuities and putting your assets into a trust that’s managed on you and/or your spouse’s behalf.
However, be careful of what’s called the “lookback” requirement.
Medicaid expects applicants to spend down their assets before applying for coverage. As a result, it will review any transfers made within several years before your application. Significant gifts or transactions below market value will violate this lookback rule, typically resulting in a period of ineligibility. This includes transfers to a family member or an irrevocable trust.
In most states, the lookback period is five years before your application is filed.
For married couples in which one spouse needs care and the other does not (the healthy and residential spouses, respectively), the situation gets more complicated. For eligibility purposes, Medicaid only considers the income of the residential spouse but considers the assets of both. However, the healthy spouse can keep additional assets in their own name. For example, in New York the residential spouse must have no more than $30,182 in assets but the healthy spouse can have up to $154,140 in their name.
The healthy spouse can hold even more in their name if the assets are legally “for the sole benefit” of the healthy spouse, meaning that only the healthy spouse can ever benefit from them. These rules can help spouses manage Medicaid’s lookback rules, as they can transfer assets within the marriage to meet these caps. But if you need help navigating these rules, consider connecting with a financial advisor with Medicaid planning experience.
Bottom Line
A nursing home cannot unilaterally seize your assets. However, it’s very easy for the costs of a nursing home to consume most of your assets via direct spending and the Medicaid asset requirements. If you pay for nursing home care with Medicaid, also keep in mind that the program could potentially attempt to recover certain costs associated with your care through what’s known as estate recovery.
Retirement Planning Tips
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Long-term care planning is just one facet of a comprehensive retirement plan. Tax management, required minimum distributions, withdrawal rates and asset allocation can all play important roles in your financial plan for retirement. Here’s a list of 10 things to do as you plan for your golden years.
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Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
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