Protecting Assets From a Nursing Home

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Most people work their entire adult lives saving for retirement. Between stocks, annuities, and savings, they think they’re covered. Then a catastrophic illness or accident happens, and they’re forced to enter long-term care. And the average cost of a semi-private room is $9,167 per month. This can wipe out a savings quickly.

Although this scenario is scary to many people, the good news is only 4 percent of seniors end up in a nursing home. But for that 4 percent, it can spell a financial disaster. Medicaid is available, but at what cost? Can you keep your assets and income with Medicaid?

Using Medicaid and Medicare for Nursing Home Costs

Medicaid was created to help people with low income. In comparison, Medicare is government health insurance for those 65 and over.

Although many adults rely on Medicaid to pay their long-term care costs, Medicare does cover some nursing home care. For example, Medicare will pay 100 percent for the first 20 days. It will pay partially for the next 100 days. But any time after 100 days, the total cost is the patient’s responsibility.

Medicaid pays total costs the entire time the patient is in the nursing home.

Medicaid Rules Vary by State

Medicaid is a federal program, but each state administers it. So, rules will vary according to where you live. Check with an elder law attorney about your state.

To qualify for Medicaid, the applicant must require the kind of full-time care that can only be provided by a nursing home. Most states will assess an applicant’s ability to complete the activities of daily living. Each state has different criteria, so check with your doctor or elder law attorney.

The state will also assess the applicant’s and, if applicable, the spouse’s financial ability. There is a restriction on income and assets.

Exempt and Countable Assets for Medicaid

There are two types of assets Medicaid looks at. These are exempt and countable.

Exempt assets include the house you live in, car, and pre-paid funeral arrangements. But although your primary home is exempt, your home equity interest must be under a specified value. In 2023, most states limit this amount to $688,000 or $1,033,000. Your home is also exempt if a non-applicant spouse or dependent child lives in it.

Countable assets can include:

• income
• money in the bank
• investments
• CDs (certificates of deposits)
• annuities
• real estate, not your primary home
• revocable living trust
• business

If only one spouse is going into the nursing home, joint assets are still counted toward the applicant’s eligibility. Even if one spouse has an inheritance only in her name, it is counted in the assets toward Medicaid eligibility for her spouse.

For married applicants, the non-applicant’s or community spouse’s income, is not counted toward the institutional spouse’s eligibility.

Under some particular circumstances, monthly income can be transferred to the community spouse from the institutional spouse. This spousal income allowance is also called a monthly maintenance needs allowance. It derives from spousal impoverishment rules. In 2023, the minimum monthly maintenance needs allowance is $2,465 in all states, except Hawaii and Alaska. The maximum monthly maintenance needs allowance is $3,715.50.

Five-Year Lookback Rule

Some people try to protect their assets by transferring them to loved ones months before applying for Medicaid. But this crisis planning won’t work. It will harm the applicant’s chances.

Medicaid has a five-year “lookback” rule. You cannot transfer any uncompensated assets within five years of applying for Medicaid.

There is a penalty period for transferring assets within the five-year window before going on Medicaid. It is determined by dividing the amount transferred by the average monthly cost of a nursing home in your state.

For example, if you transferred $100,000 in a state where the average monthly nursing home cost is $5,000, the penalty period would be 20 months. In other words, the applicant must self-pay for 20 months before Medicaid would apply.

When you fill out the Medicaid forms, you must disclose all financial information. And they will check your finances over the previous five years.

Medicaid Estate Recovery

Medicaid can perform Medicaid estate recovery to be reimbursed for the monies the program spent on your care. The result is that your home is not protected when you die. Medicaid will require your heirs to sell the home to pay the additional amount that Medicaid had to pay for your care. 

The exception to this rule is if a spouse lives in the primary residence. It’s imperative to have the community spouse’s name solely on the deed. If the community spouse is not the only one on the deed, the home will be subject to Medicaid estate recovery.

Transferring the name on the house deed to the community spouse is exempt from the five-year lookback rule.

Medicaid-Compliant Annuity

You could purchase a Medicaid-compliant annuity to provide income to a community spouse. But there are strict rules. For one, the annuity must be irrevocable and non-assigned. Only you and Medicaid have value in it.

A Medicaid-compliant annuity must not exceed the life expectancy of the individual receiving benefits. And this annuity cannot provide a lump sum; it must be paid out monthly or quarterly.

The most important feature of a Medicaid-compliant annuity is the beneficiary. The state’s Medicaid program is the beneficiary in the event of the annuitant’s death. Nothing goes to your loved ones.

Using a Trust to Protect Assets

You might be tempted to set up a living trust to protect your assets. But the type of trust you choose could leave your assets vulnerable.

For example, Medicaid has access to assets placed in a revocable trust. That’s because you can end the trust at any time. You always have access to the assets. And, therefore, you can use the assets to pay your nursing home expenses.

But an irrevocable trust is an option that protects your assets. You cannot change or revoke this trust. And you give up control of your assets.

There are several types of irrevocable trusts, so meet with an elder law attorney to determine which one will work for you.

Can You Gift to Protect Assets?

You cannot gift uncompensated assets to another family member or friend within the five-year lookback window. It will be counted in the penalty.

The key word is uncompensated. Suppose you sell the asset at market value; that’s a different story. But you can’t sell real estate or any asset to someone for a dollar and expect it to meet Medicaid’s rule.

Planning Protects Assets

If you’re concerned about needing a nursing home someday, the time to plan is now. You must decide and make arrangements five years before your need.

But remember, only 4 percent of seniors ever face these circumstances. So, be vigilant, but don’t panic.

The Epoch Times Copyright © 2023 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.