How Can I Protect My Assets From Nursing Home Care?
June 30, 2021Nursing Homes
You’re looking at long-term care needs but don’t know how to protect your assets from Medicaid’s income requirements? Follow this guide to protect your assets.
You can protect your assets from nursing home care by creating a trust designed for asset protection, purchasing long-term care insurance, or transferring your assets to your spouse not living in long-term care or a trusted child via an annuity. Each of these is best managed with sound legal advice.
We’ll discuss these top strategies for ensuring your assets are as protected as they can be for a transition into nursing home care. We’ll discuss Medicaid specifics, the rules that govern assets when applying for Medicaid coverage in long-term care, and the options available to protect your assets from Medicaid penalties. We will give you the distinct benefits and drawbacks to each asset-protection option and lay out what the best plan is for you.
Ultimately, you should always be seeking legal assistance when making financial protection decisions, as each state’s statutes are always a little different. Legal experts in your particular areas will be the most up to date on your state’s specific policies and loopholes when it comes to asset management.
As a nurse with 15 years’ experience in long term care settings, I have seen firsthand what a headache asset management can be for the transition into a long-term care setting like a nursing home. Knowing that pre-planning has always had the best results for those I’ve taken care of has made me passionate about sharing this knowledge so that others who may one day find themselves in the need of nursing home care can make plans now to avoid navigating difficult waters down the road.
Table of contents
Asset Protection Trusts
A type of trust that is utilized when a person is attempting to consolidate assets to prevent them from being used in a Medicaid spend-down is an asset protection trust. These trusts are utilized in many states (though not all), and they help people to keep assets from being counted in situations where financial assets are being evaluated by entities like creditors or Medicaid evaluators. These can be utilized for situations like lawsuits and debt collection, but in our case are particularly useful when set up properly in the shielding of assets from the Medicaid spend-down requirement.
While looking into asset-protection trusts, you need to keep in mind that the trust is irrevocable, has many regulations that need to be met, and has very particular rules regarding use of assets in the trust. Ensure that your financial advisor is up to date on these specific kinds of trusts so they can adequately prepare you for the requirements you’ll be seeing.
Medicaid Spend Down
Medicaid is the federal entity that provides for long-term care coverage when the time comes for a transition to that care setting. Medicaid has a series of complex rules and regulations that must be met in order to be utilized, and one area that becomes complex and often requires expert guidance is the Medicaid Spend-down requirement.
Medicaid will only pay out for a person’s long-term care placement once a certain income and asset level is acquired. Reaching this level requires a person to undergo a spend-down program, where essentially all assets are utilized for payment of long-term care placement until the threshold is met. It is important to note that the threshold is different and varies from state to state, so consulting a financial advisor in the area that you are looking to enter a long-term care setting is vital to receiving the most accurate information for that area.
There are exempt assets from the Medicaid spend-down requirements, and an irrevocable trust or asset-protection trust is one such exemption. The trust is crafted by a knowledgeable financial advisor who is able to make you the beneficiary of the trust in such a way that still grants you occasional access to your assets, while also making them untouchable to Medicaid requirements.
Long-Term Care Insurance
If you are pre-planning for the possibility of needing nursing home level of care in the future, a long-term care insurance policy may be just the item you need to cover the costs of long-term care placement without worrying about the dent it could make in your existing assets. Instead of looking to Medicaid for payment assistance with your long-term care needs (which requires a large spend-down of personal assets before becoming available), long-term care insurance can be purchased prior to needing the coverage for the eventuality that a nursing home may be in the future.
There is a 50/50 chance once a person reaches their 50’s and 60’s that a long-term care placement setting will be needed. Long-term care insurance options are variable and have different plans that offer a variety of different options to suit your individual situation.
Some plans are straightforward plans where you pay a monthly premium, and when the time comes, a set payout amount for care costs is distributed for your needs. These plans often have a limited timeframe that they will cover expenditures for (approx. 3 years is the average), and average daily payout amounts hover around $160. These plans are dwindling in availability however- mostly due to the prevalence of alternatives to asset protection seen in the market.
Another type of long-term care insurance that has been gaining momentum is known as a type of hybrid insurance. This combines benefits of a long-term care insurance policy with a life insurance policy, and provides benefits prior to death to help cover the costs of a long-term care placement while also having the flexibility to be utilized as a life insurance policy if the benefits are not utilized for a nursing home setting. If you wind up needing a nursing home, the policy provides monthly payouts. If you don’t, the policy provides a lump-sum payout to your beneficiary in the event of your death. Even if the policy is utilized for long-term care needs, there is usually a small lump-sum available once the policyholder passes away that is given to the beneficiary for use with funeral expenses.
Knowing which of the policies would best benefit your situation right now is key. Seeking out advice on insurance policies now will allow you a maximum amount of time to fund the policy before possibly needing the benefits of the policy.
Spousal or Family Asset Transfer
If you find yourself in need of nursing home care suddenly and haven’t pre-planned for the possibility (as many of us haven’t), utilizing the system’s loopholes for asset transfers may be your best option for safeguarding your assets before entering long term care.
If your spouse is not in need of a nursing home at the same time as you, utilizing a spousal transfer of assets may be your best bet. While each state maintains its own requirements and regulations regarding spousal transfer of assets, most allow for at least a portion of either mutually-owned assets or assets strictly in your name to be transferred over to your spouse, and therefore keep the assets from being counted towards your Medicaid spend-down assets. A very important caveat for this transfer is that the asset must solely be used by and for your spouse and spouse’s needs, and can not be used for your benefit.
Along the lines of a spousal transfer, if you have assets that need protecting prior to application of Medicaid benefits, transferring your assets to another trusted family member (or even a trust), set up for the sole benefit of your spouse is an additional way to get assets transferred in a way that can still be utilized by a spouse. Again, the rules apply that all assets transferred in this manner must be utilized only for the spouse’s best interest and not for your own as the Medicaid applicant. This also establishes that the family member to whom the assets are transferred is also not able to utilize the assets in any way that is not deemed to be in the benefit of your spouse.
Some states allow for asset transfers to family members under a certain amount without penalty against the Medicaid spend down amount. This amount varies greatly by state and situation, and is not allowed in every state. Additional requirements for asset transfers to non-spousal family members can be complex, so talking to a legal representative who is versed in Medicaid specifics is necessary to ensure this option will be available to you.
Which Asset Protection Plan Should I Choose?
While pre-planning is always the preferred method when approaching management of finances, there is no telling when and how the need for nursing home care services will arise. Knowing your options beforehand, or options to seek should the event arise suddenly, will be vital to your ability to retain your assets in the transition of living environment.
No matter which route is taken, the important factor when protecting your personal assets is to seek assistance early in your decision-making process. Financial consultants and legal representatives who are experienced in Medicaid spend-down are well-versed in the specific laws overseeing all asset protection avenues, and will have the most knowledge of location-based requirements to allow you to maximize your asset retention prior to nursing home care.
About THE AUTHOR
Nichole Lindemier BSN, RN is a Neuro-Rehabilitation Nurse, educator and freelance writer based in Michigan who has 15 years of experience caring for adults in Emergency, Long-Term Care andAssisted Living settings. She earned her Bachelor of Science in Nursing from the University of Michigan-Flint and is currently pursuing her degree as aFamily Nurse Practitioner with the University of Cincinnati.Read more about Nichole Lindemier
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