How to Protect Assets from Nursing Home Costs
An estimated 43% of Americans will enter a nursing home at some point in their lifetime. These homes provide a valuable service for the elderly who cannot care for themselves. However, the cost of care can be steep: about $90,500 per year for a private room.
Most will stay in a care facility for about two years, which makes it crucial to plan for these costs ahead of time. Long-term care is not covered by Medicare or Medicare Supplemental Insurance. Medicaid may cover the cost of nursing home care, but only after you've exhausted most of your existing assets.
Through proper planning and the help of an elder law attorney, you can legally protect your assets to preserve your nest egg and ensure that your family is taken care of after your demise.
Establish an Irrevocable or Pour-Over Trust
An irrevocable trust is exempt from nursing home costs, but a living trust is not. While you cannot receive principal, all dividends and interest are exempt from these costs.
If you would prefer not to set up an irrevocable trust, you may place your and your spouse's assets into what's called a "pour-over" trust.
A pour-over trust protects your assets while still allowing you to access them.
Draft a Life Estate
An estate planning attorney can draft a life estate for your real property. The estate will name you as the life tenant and a loved one as the remainderman. The remainderman will take over ownership of the property after your death.
As the life tenant, you are permitted to live on the property for the rest of your life. After your death, your property will transfer to the remainderman, preventing the state from making a claim on it.
Give Monthly Gifts and Transfer Income to Your Spouse
Start giving out monthly gifts before you get sick. Doing so will help protect your assets from creditors.
Waiting too long to make monetary gifts can cause problems for your family after your death. Any assets transferred within the five years before you enter a care facility are subject to seizure after your death.
Depending on state laws and how much you gift, you may be responsible for paying a gift tax on your monetary gifts.
Transferring some of your monthly income to your spouse can also help protect your assets. Under the Federal Spousal Impoverishment Act, spouses may omit their own income when paying for their partner's nursing home care. Provided your spouse's income is less than the state's exemption, you can transfer some of your income to bridge the gap. This income would be protected under federal law.
The cutoff for spousal maintenance varies from state to state.
Set Up an Annuity
In some states, the periodic payments from annuities are not considered when determining Medicaid eligibility. This would allow you to transfer your assets and qualify for Medicaid coverage without putting your property in jeopardy.
If you live in a state that does consider annuity payments when deciding Medicaid eligibility, you may still transfer your assets. However, you would not be able to use Medicaid's services for a set period of time after the transfer.