How to Protect Your Assets from Nursing Home Costs

Why protect assets from nursing home costs and Medicaid?

Protecting assets from nursing home costs ensures you can legally preserve your savings and legacy for your family while still qualifying for Medicaid benefits. With private nursing home rooms averaging over $9,700 per month—more than $100,000 annually—unprotected assets can be depleted quickly. Strategic planning helps you meet Medicaid's strict eligibility requirements without sacrificing everything you've built.

Many people rely on Medicaid benefits for long-term care, but qualifying isn't straightforward. Here are key factors to understand.

• Asset limits: Medicaid has strict eligibility thresholds, and you may need to "spend down" assets to qualify.
• Look-back period: Medicaid reviews the previous five years for asset transfers made below fair market value.
• Advance planning: Most protection strategies must be implemented at least five years before you need nursing home care.

6 ways to protect assets from nursing home costs

There are several strategies you can use to protect assets from nursing home costs. Here are some of the most effective ways to afford the end-of-life care you or your loved ones need.

1. Purchase long-term care insurance

Long-term care (LTC) insurance covers nursing homes, assisted living, adult day care, and home health care for people unable to care for themselves. With an LTC plan, you can pay for care without depleting your savings.

There's a price for that coverage, though. "The cost of long-term care insurance has gone up dramatically, and many people hesitate to purchase a product which is available if they need it, but much like term life insurance, has no cash value if they do not need to go into a nursing home," says elder law attorney Steven Weisman.

When purchasing this protection, keep in mind that the Department of Health and Human Services says 22 percent of adults will need care for more than five years. Only 12% will need care for less than a year. Long-term care needs can add up, making LTC insurance worth it in the eyes of many.

2. Purchase a Medicaid-compliant annuity

A Medicaid-compliant annuity converts assets into regular monthly income payments that Medicaid can’t count against you. This strategy is especially valuable for married couples when one spouse needs care and the other doesn't.

If a couple has assets that would disqualify the applicant spouse from Medicaid, they can invest those funds into an annuity to create income for the healthy spouse. When properly structured, it's a way to "spend down" and reduce the income Medicaid considers when deciding if you qualify for that assistance.

"Annuity purchasers are effectively giving a lump sum of money to an annuity company in exchange for equal amounts of monthly payments to a healthy spouse while the other unhealthy spouse is receiving medical assistance subsidized by Medicaid," explains Shawn Plummer, CEO of The Annuity Expert.

People tend to make this purchase in crisis situations, notes Plummer. However, not all annuities are Medicaid-compliant. To qualify, an annuity must be:

• Non-transferable
• Irrevocable
• Set to pay out over your life expectancy

Consult with an elder law attorney who understands Medicaid rules before purchasing.

3. Form a life estate

Wondering how to avoid a nursing home taking your house? A life estate is a legal arrangement that allows a homeowner to transfer ownership of their primary residence to another person (usually a family member) while also remaining an owner until they die, even if death occurs in a nursing home. It protects the home from being counted as an asset for Medicaid purposes, so you get more coverage for nursing home costs.

With a life estate, "The home passes to the 'remainderman,' who is the person listed on the deed as the person to inherit the property upon the death of the 'life tenant,'" says Weisman. He adds that it differs from a joint tenancy in that until the homeowner dies, the "remainderman" has no interest in the property.