Long-term care for seniors is one of the biggest gaps in the American safety net. For many of us, as we get older, we need longer and better care. In some cases, that may mean a caregiver or other forms of home care. More often, though, it means moving to a facility like a nursing home. The problem is, long-term care facilities are expensive. Let’s dive into the details.
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Nursing home costs
In many parts of the country, nursing home living can cost more than $100,000 a year, on top of any other needs or expenses. Medicare typically pays very little, if any, of this.
This is a glaring omission in what should be the most important safety net for older Americans, especially since the Department of Health and Human Services estimates that about 70% of retirees will need long-term care at some point.
It also means that paying for long-term care is becoming a critical issue for most households. As you figure out how to care for yourself or a loved one, it’s important to make sure the critical assets in your life are protected.
Why should you protect your parents’ assets?
When it comes to protecting assets, there are two key issues:
Payment is the issue of liquidating assets to pay for the high cost of nursing home care. As families find ways to pay for their loved ones, one of the biggest issues becomes how to pay expensive bills without sacrificing important assets. For example, can you pay for long-term care without selling the family home? Or cherished items?
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At the same time, it’s also important to protect assets from creditors. There are some programs that can help you pay for long-term care, but they usually do so on an as-needed basis. They may base the payment on your net worth or place a lien on important assets. Like liquidation, this can threaten assets ranging from your retirement accounts to your home.
Enrolling in Medicaid
Protecting your assets is a particularly pressing issue in the context of Medicaid.
While Medicare generally does not pay for nursing home care, Medicaid does. Medicaid is a state-run program, so each program’s coverage and requirements vary, but they must all provide some form of long-term care coverage.
Many, if not most, Medicaid programs require you to contribute to the cost of care. This can mean a number of things, depending on the state. Most often, however, it means that you have to qualify for the program, which means that you have exhausted your savings. It can also mean that the state will have a claim on certain assets, such as your home, based on how much coverage you use.
In either case, this can pose a risk to your family’s assets.
7 Steps to Protect Your Parents’ Assets from Nursing Homes
Long-term care insurance
The first way to protect your or your parent’s assets is with long-term care insurance that covers the cost of nursing home care. These plans can offer a range of coverage, from home health aides to permanent residents. It all depends on the program and your (or your parent’s) needs.
The advantage of an insurance plan is that it can be comprehensive. If your plan covers your needs, there is no risk to other assets. The stay in the nursing home is paid for and the rest of your assets are safe.
The downside is the cost. Long-term care can be very expensive, especially if you buy it later in life. Paying for the premiums and any deductibles can create the exact problem you are trying to solve, depending on your financial situation.
That said, the average $2,200 premium for a long-term care plan is a lot less than the $100,000 price tag for a nursing home. If this is an option that makes financial sense, it’s a good one.
Establishing irrevocable trusts
When you place assets in an irrevocable trust, it means that you no longer own them. They are managed by a third-party trustee and are administered according to rules that you establish. You cannot make changes to this trust or withdraw assets, but they are also not counted as your assets for Medicaid eligibility.
Establish a lifelong usufruct
A lifelong usufruct can accomplish many of the same goals as an irrevocable trust. A lifelong usufruct is a legal entity that owns real property, such as your home. You may continue to live in it as a “lifelong tenant,” meaning that you have the “right of possession,” but not the “right of ownership.” After your death, the usufruct passes to the person you designate as the “remainder.”
As with an irrevocable trust, since you technically no longer own the home, the Medicaid program cannot count it toward eligibility, nor can the state place a lien on it. When you die, you can leave the home to your loved ones by designating them as the remainderman.
Give or receive gifts
The gift tax has very high limits. In 2023, you can give away up to $12.92 million in assets over your lifetime, tax-free, plus an additional $17,000 in assets per recipient per year. This limit increases each year.
Individual assets
Married couples can also choose to file taxes separately.
One of the biggest complications in property and taxes is determining who owns what in a married couple. Specifically, any assets you accumulated during your marriage (such as the home and retirement accounts) can be considered marital assets for the life of the marriage.
However, depending on your state’s tax and property laws, you may be able to set up legally separate finances. If you can, the first step is to file separate tax returns.
Conclusion
If you or your parents need to go into a nursing home, paying for it can be a problem. Whether it’s through long-term care insurance or Medicaid, it’s important to make sure your most important assets are safe for this process. Check your state’s Medicaid program or the state where your parents live for more information.
Tips for saving for your retirement
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Planning for retirement on your own can be tough, but a financial advisor can help. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who work in your area, and you can interview your advisors for free to determine which one is the best fit for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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Use SmartAsset’s retirement calculator to see if you’re on track with your savings. Use our Social Security calculator to see how much additional income you can expect to receive during your retirement.
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Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid—in an account that isn’t subject to big swings like the stock market. The tradeoff is that the value of liquid assets can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
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