Facing the reality that a beloved elder family member or partner requires long-term care can be emotionally challenging. But what often adds to the stress is the financial burden that comes with nursing home care. The cost of nursing home care in the United States continues to rise, leaving many families with the daunting prospect of depleting their hard-earned assets to cover these expenses.

The average cost of nursing home care varies across the country, but as of September 2021, it stood at approximately $8,821 per month for a semi-private room, according to Genworth’s Cost of Care Survey. With these prices, it’s no wonder that families are concerned about protecting their assets. At Hermance Law, we understand these concerns and are here to provide you with valuable insights on safeguarding your assets from the potentially devastating impact of nursing home costs.

Why Nursing Home Costs Threaten Your Assets

Nursing home care is crucial for many older adults, but the expenses can be a substantial threat to your accumulated assets. Without proper planning, individuals may be forced to exhaust their savings, sell their homes, or liquidate their investments to cover these costs. Fortunately, there are strategies to help protect your assets while ensuring your loved ones receive the care they need

Here are five tips to protect your assets from the financial strain of nursing home care:

• Long-Term Care Insurance

Long-term care insurance is a proactive approach to managing the costs of nursing home care. These policies can cover a significant portion of the expenses associated with long-term care, providing you with financial peace of mind.

Understand, however, that long-term care insurance can come with a substantial price tag. For example, a 55-year-old man can anticipate an annual premium of approximately $2,200 for this coverage. Women, on the other hand, may face a higher cost (around $1,500 more), while couples might be looking at an expense of approximately $5,000.

Naturally, the cost of purchasing a policy increases as you grow older, and specific severe medical conditions, such as muscular dystrophy and cystic fibrosis, can pose challenges, if not outright barriers, to obtaining coverage.

Despite this, the average premium of $2,200 for a long-term care plan is still significantly more affordable than the hefty $100,000 expense associated with a nursing home. If this is within your financial means, it presents a favorable choice.

• Medicaid-Compliant Annuity

A Medicaid-compliant annuity is a financial tool that can help protect your assets while ensuring you or your loved one qualifies for Medicaid. It allows you to convert a lump sum of assets into a stream of income, helping you meet Medicaid eligibility requirements.

However, not all Medicaid-compliant annuities are equal. Due to changes in Federal and State Medicaid laws, some “Medicaid-friendly” annuities are limited in that they can only be used for nursing home care and the death benefit must be utilized to reimburse the State for any incurred expenses. 

Additionally, cashing in these annuities can lead to substantial penalties in the form of surrender charges, which could reach as high as 50 percent. Consequently, these annuities can restrict the range of asset protection possibilities for individuals in nursing homes. Nevertheless, some Medicaid-compliant annuities acquired after admission to a nursing home as part of an asset protection plan can still be viable planning tools, you just have to choose the right one.

• Giving Financial Gifts

Strategically gifting assets to family members or loved ones can be a way to reduce your countable assets for Medicaid eligibility. However, this approach requires careful planning and adherence to Medicaid’s rules and regulations.

An essential rule to keep in mind is the Medicaid “look-back” period, which assesses financial transactions conducted in the five years leading up to your Medicaid application. Providing gifts during this timeframe might impact your Medicaid qualification and potentially result in a penalty period when you are ineligible for Medicaid benefits.

Not every gift will incur penalties. Certain categories of property are excluded from the look-back rule. For instance, gifts between spouses and gifts directed toward a disabled child fall under this exemption. Additionally, the transfer of home ownership is exempt if carried out in favor of a spouse, disabled child, minor child, caretaker child, or sibling, provided specific qualifying conditions are met.

• Establishing an Irrevocable Trust

Creating an irrevocable trust can protect your assets by transferring ownership out of your name. This legal arrangement can help shield assets from nursing home costs while allowing you to specify how those assets are distributed.

Not only is the principal within this trust type shielded from nursing home expenses, but the periodic interest and dividends it generates also remain securely out of reach. However, it’s essential to bear in mind that once established, this trust cannot be modified or terminated, except under extremely limited circumstances. The assets within the trust become the trust’s own property, with the trustee responsible for disbursing them following the trust’s stipulations.

Bear in mind that irrevocable trusts are also subject to the five-year look-back rule. Therefore, it is crucial to consult with a seasoned Elder Law attorney who can guide you through this process should you choose to establish an irrevocable trust.

• Creating a Life Estate

A life estate allows you to retain the right to live in your home while transferring ownership to someone else, often a family member. In a life estate arrangement, the home is transferred to the “remainderman,” who is the individual designated on the deed to receive the property after the “life tenant” has passed away.

This can be an effective way to protect your home from being considered a countable asset for Medicaid eligibility.

Common Misconceptions About Nursing Homes and Your Assets

Before implementing any of these asset protection strategies, it’s essential to dispel common misconceptions about nursing homes and assets. 

Creating joint assets with your children automatically exempts them from Medicaid consideration for nursing home purposes.

Fact: Joint assets can still be subject to Medicaid scrutiny, potentially affecting eligibility.

Giving away assets shortly before entering a nursing home will protect them.

Fact: Medicaid has a “look-back” period that can result in penalties for recent asset transfers.

If my spouse or I go into a nursing home, I will lose my home.

Fact: There are ways to protect your home and qualify for Medicaid. Generally, properly owning and using a home during your lifetime can render it exempt from being counted as an asset for nursing home costs. Other exempt assets include a single automobile, prepaid funeral arrangements, and specific life insurance policies. Furthermore, upon your passing, a home with the correct title is not subject to probate proceedings, nor does it become eligible for use in the state’s Medicaid estate recovery program, which is used to reimburse the state for any Medicaid benefits received.

There is a slim chance that I will go into a nursing home.

Fact: Many people eventually require long-term care. The Department of Health and Human Services estimates that approximately 70% of retirees will likely require long-term care at some stage.

I need to exhaust my assets to qualify for assistance.

Fact: This is almost always false, as there are many other strategies you can employ without having to deplete your assets. Effective planning can help preserve assets while obtaining assistance.

If I am already in a nursing home, it is too late to protect my assets.

Fact: Strategies are available to protect assets even if you are already in a nursing home. However, Medicaid and asset protection planning can be complex, and trying to handle these matters alone may lead to months of Medicaid ineligibility and additional expenses. Consulting with a qualified professional is essential for proper guidance.

Protect Your Assets with the Right Estate and Crisis Planning Guidance

The cost of nursing home care in the United States continues to rise, making asset protection a critical consideration for individuals and families. By proactively planning and exploring the strategies mentioned above, you can help secure your financial future while ensuring your loved ones receive the care they need. 

At Hermance Law, we specialize in estate and crisis planning and can provide you with the guidance and support needed to protect your assets. Don’t wait until it’s too late—contact us today to start safeguarding your hard-earned assets from the financial challenges of nursing home care. Your financial security and peace of mind are our top priorities.