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Nursing home stays and long-term care can cost well over $100,000 per year. To pay for this, families often have to liquidate their assets to raise money or meet Medicaid’s spending requirements. If you want to protect your assets from this outcome, long-term care insurance may be your best option. But if this type of coverage isn’t available to you, you may need to look into Medicaid and consider protecting your assets from the program’s strict requirements.
A financial advisor can help you plan for your retirement, including your long-term care needs.
Can a nursing home seize your assets?
A nursing home cannot unilaterally seize your property. In some cases, if you do not pay your bills, a facility can file a lawsuit and obtain a judgment for payment, which can result in liens, foreclosures or seizures, but that is a separate legal process. A nursing home cannot, on its own, simply take property from you.
It may seem that way. According to Genworth, an insurance company that provides long-term care, a private room in a nursing home is expected to cost more than $118,000 a year by 2024. Unless you have insurance, it’s common for households to sell large assets like real estate and long-term investments to pay for this care.
This is not always a bad option. Many people need lifelong care when they move to a nursing home. They no longer need major assets, such as their family home, so this can be a good way to pay for the nursing home costs. A financial advisor can help you plan and save for these costs.
However, it is not always a good option. There are many reasons why you may need to protect your assets from the cost of a nursing home. For example, perhaps only one spouse needs to move into the facility, or you may want to leave assets to your family as an inheritance. Whatever your reason, it is worth investigating how you can do this.
Paying for a nursing home
It is important to remember that most nursing home care is considered “custodial care” – non-medical personal care, including bathing, dressing, and assistance with other daily tasks. As a result, health insurance generally does not cover nursing home care. Medicare covers these costs only when care in a skilled nursing facility is medically necessary.
Besides simply having cash on hand, the two most common ways to pay for a nursing home are long-term care insurance and Medicaid.
Long-term care insurance
Long-term care insurance is a specific type of coverage that pays for residential or home care. This can include home help services, home health aides, and nursing home stays.
At age 60, annual long-term care insurance premiums typically range from $900 to $3,690 for men and $1,500 to $6,400 for women, according to the American Association for Long-Term Care Insurance. This is typically the best way to protect your assets against the cost of nursing home care.
That said, like most insurance policies, these policies can limit new coverage. In particular, a standard long-term care policy probably won’t approve someone who needs residential care right away. The bottom line is that long-term care is a good option when planning, but may not be effective if you currently need immediate care.
Medicaid
Medicaid is the most common option for households with a current need for nursing home care but without the means to pay for it themselves. Unlike Medicare, Medicaid pays for residential care such as a nursing home. Coverage is usually basic with few to no creature comforts. However, the program does cover the cost of room, board, medications, and other expenses.
Eligibility for Medicaid
To qualify for Medicaid, you must have limited assets and income. While each state operates its programs with its own rules, they all require some form of limited household resources. For example, in New York, an individual must have no more than $30,182 in total assets and $1,732 per month in income to qualify for nursing home coverage.
Each state treats property differently. For example, a given state may or may not include personal property, valuables, and motor vehicles in total household assets. The biggest difference, however, is the primary residence. States may exempt all or part of your home from Medicaid’s asset requirement, depending on issues such as whether you have a spouse living in the home, whether the state has a home equity exemption, and whether you plan to move back into the home.
A state Medicaid program can also place a posthumous mortgage on your home through what is called estate recovery, meaning that after your death they will attempt to recover the cost of care by possibly selling your home. This is a federal law that generally applies.
A financial advisor can help you plan for Medicaid. For example, a Certified Medicaid Planner (CMP) is an advisor who is specially trained to help you assess your needs and develop a strategy to potentially qualify.
Medicaid Lookbacks and Partner Transfers
For a household with significant assets—say, $800,000 in investments and a paid-off home—Medicaid rules could pose significant challenges. These assets would far exceed a particular state’s limits, so you would have to spend them strategically to qualify for coverage. This can typically be done in a variety of ways, including intrafamily transfers, Medicaid annuities, and placing your assets in a trust managed on your behalf and/or your spouse.
However, be careful with the so-called ‘lookback’ requirement.
Medicaid requires applicants to deplete their assets before applying for coverage. Therefore, all transfers made within a few years of your application will be reviewed. Significant gifts or below-market transactions violate this look-back rule, which typically results in a period of ineligibility. This includes transfers to a family member or an irrevocable trust.
In most states, the lookback period is five years before your application is filed.
For couples where one partner requires care and the other does not (the healthy and residential partners, respectively), the situation becomes more complicated. For eligibility purposes, Medicaid considers only the income of the residential partner, but also the assets of both partners. However, the healthy partner can hold additional assets in his or her own name. In New York, for example, the residential partner can have no more than $30,182 in assets, but the healthy partner can have up to $154,140 in assets.
The able-bodied spouse may have even more to his or her name if the assets are legally “for the sole benefit” of the able-bodied spouse, meaning that only the able-bodied spouse can ever benefit from them. These rules can help spouses manage Medicaid lookback rules, since they can transfer assets within the marriage to meet these limits. But if you need help navigating these rules, consider contacting a financial advisor with Medicaid planning experience.
Conclusion
A nursing home cannot unilaterally seize your assets. However, it is very easy for nursing home expenses to consume the majority of your assets through out-of-pocket expenses and Medicaid asset requirements. If you pay for nursing home care with Medicaid, be aware that the program may also seek to recover certain costs associated with your care through what is known as estate recovery.
Tips for retirement planning
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Planning for long-term care is just one aspect of a comprehensive retirement plan. Tax management, required minimum distributions, withdrawal rates, and asset allocation can all play an important role in your financial plan for retirement. Here’s a list of 10 things to do as you plan for your golden years.
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A financial advisor can also help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can schedule a free introductory meeting with your advisors to decide which one is right 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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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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