How to Protect Your Assets From Nursing Home Care

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There are millions of people using nursing homes or long-term care facilities across the country, and as the population ages that number is only going to get bigger.

How to Protect Your Assets From Nursing Home Care

All of us spend our working years saving money so that we can enjoy our retirement years, but when we become ill and need care we can see our savings and investment start to very quickly dwindle.

The costs for a private room in a nursing home can cost up to $7,698 per month, which works out to be over $92,000 a year. How many of us make that much money in our working years yet alone in retirement when our income is limited?

If you don’t make sure your finances are set up properly before you get to this point, it could leave you struggling to find the right kind of care for your needs.

The unfortunate part is that no one really knows when that day will come that we need long-term care or to go into a nursing home so it’s one of the hardest parts of our retirement years to plan for.

The best time to start preparing for this kind of expense is now, even if you still have 20 or 30 working years left.

Many people will be thinking about Medicaid and how it can help them, but if someone has significant assets this program may backfire and not actually help so it’s important to understand the role this program will play in your life potentially.

How Does Medicaid Fit In?

The Medicaid program is meant to step in and cover the cost of nursing home costs for those individuals who may not be able to afford it otherwise, however it is considered to be the very last resort.

assisting senior with walker

The eligibility for this program is based on income, so in order to qualify for this program – and by the time it happens – your assets will likely have to be depleted. By the time this comes around, it may be too late or you’re relying on other people to help you pay for the costs of nursing care.


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Protecting Your Assets

Part of the program that not everyone knows about is what is known as “look-back” provisions. This allows the government to review and examine all asset transfers within the last 5 years before applying for Medicaid.

If the government determines that any of your asset transfers are ineligible or not exempt then you could find out that you don’t qualify for Medicaid assistance.

Knowing this, there are still a few ways you can make sure to protect your assets from the cost of nursing homes and make sure you are not completely depleting all the savings you have worked for hard for.

Gift Money

When the government reviews your asset transfers, there are some kind of transfers that are considered exempt from qualifying criteria.

You can transfer gifts, of certain amounts, without penalty. These are usually household goods, mementos, personal effects, prepaid funeral expenses, and income-producing properties. In some cases, you can also gift your home and retirement accounts – but this is not always the case so you should definitely consult with an accountant and/or financial advisor before doing this.

It is important to note, though, with some gifts there could be tax implications for those who are receiving the gift. If you are gifting it to your family members or loved ones, you may want to think about this so they are not surprised by a massive tax bill.


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Irrevocable Trust

This kind of trust is set up allows an individual to give away or spend their assets in order to qualify for Medicaid. This is because assets placed in an irrevocable trust no longer legally belong to that individual, and an independent trustee is named to manage the funds.

You can choose who you designate that trustee to pass your assets to, and that person can be anyone you want to name. Usually, people name their spouse, their children, and other loved ones but ultimately it’s up to you.

old man and her daughter

While the individual cannot control the principal amount in the trust, the person can use the assets in the trust during their lifetime without issue.

On top of this, a person can put their family home into an irrevocable trust as an asset. Why would someone do this?

Well, if the family home is sold while the person who owns it is still alive but in a nursing home then the proceeds of the sale of that home do not count towards someone’s eligibility for Medicaid. This can help protect an inheritance for their children or grandchildren, and it’s a way to save those assets.

There are other types of trusts available to be set up, more commonly known as “living trusts”, are not protected from Medicaid because the government considers any assets in those kinds of trusts to still be your property and therefore count towards your eligibility for Medicaid.

One of the biggest considerations here, though, is that even an irrevocable trust is subject to the five year review period by the government. So if this is something you want to consider, you may want to make sure it’s established early on (but not too early so that you can still control your own assets) to make sure your assets are truly protected from Medicaid.

Life Estate

This kind of protection is mostly surrounding a family home, and gives you the right to live in that home until you pass away as a “life tenant”. When you pass away, with this kind of protection, the property will transfer to the person you designate.

mature man sitting on his table

Through this life estate, you will stay in control of your property until you pass away and then your loved one takes controlling interest of the property.

This kind of set up, like the irrevocable trust, is subject to the five year review term by the government. In addition to that, if the property is sold while the Medicaid recipient is still alive the proceeds do count towards their eligibility to receive the support.

It’s also important to remember that property transfers may have tax implications for those who are receiving the property. This could include an inheritance tax or capital gains taxes that they need to pay. If you are considering going this route, it would be beneficial to sit down with a financial advisor to explore the options and determine exactly how this will affect you and your loved ones.


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Can Medicaid Take Your House?

The answer to this question is kind of two-fold. When a Medicaid recipient passes away, there is a process called “estate recovery”.

During this process, the government will attempt to recover the benefits it has paid out for nursing home and other care needs. With proper estate planning, an individual can minimize the impact of this process and make sure the inheritance for their loved ones is protected.


If a Medicaid recipient is still alive, and either they or their spouse is still living in the family home, Medicaid cannot take their home or force them about selling their home.

There are some complexities in this process, so proper estate planning is essential to make sure you are receiving maximum benefits and Medicaid is not going to take all your assets once your pass away. The short answer is that while you are alive, and still living in your home, Medicaid cannot take your home.


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The Bottom Line

It’s very unlikely that you will be able to shield all of your assets from the government and the Medicaid review process, so you probably can’t get away with not paying for any nursing home care costs.

What you can do, likely, though is to protect some of your property and assets through some smart and early on estate planning. If you are planning to give your children, grandchildren or other loved ones some inheritance efficient estate planning is a must so that you know where your money is going and you can ensure your loved ones get the money and inheritance you want them to have.

The hardest part about planning for protecting your assets is that no one really knows when they will need to go into a nursing home or have long-term care come into their life. The other part is that no one knows how long they will need the care for: is it temporary (like recovering from surgery) or is it permanent because of a chronic illness that won’t get better?

The costs of this kind of care can add up really quickly and leave individuals shocked and worried with how they’re going to pay for it.

On top of that, the government’s five year review stipulation makes it very tough to implement plans as most people won’t know more than five years ahead of time that they will be going into a nursing home.

With this in mind, it’s important to start estate planning early and have a plan of action in case you need it. This will make sure your asset transfers are outside the five year review period, and hopefully will exempt your assets (or most of your assets) from being considered in your qualification for Medicaid.