Paying for Nursing Home Care: How Your Assets Are Used
When you enter a nursing home, you are required to pay for the services you receive. The facility does not 'take' your assets, but the high cost of care means your personal funds will be used to pay your bills. This process can be broken down into two main scenarios: paying with private funds and paying with Medicaid assistance.
Self-Paying for Long-Term Care
If you have savings, investments, or other significant assets, you will first use these resources to cover your nursing home costs. For individuals with substantial wealth, this might cover a short-term stay. However, with long-term care costing over $100,000 per year, many people’s savings are quickly depleted. For married couples, the situation can be complex, as both spouses' assets are generally considered available to pay for care.
The Medicaid Spend-Down Process
For those with limited income and assets, Medicaid is the primary payer for long-term care. To qualify, you must meet strict financial eligibility criteria, which involves a process known as a 'spend-down'.
- Asset Limits: In most states, a single individual can only have a minimal amount of countable assets, typically around $2,000. For married couples where only one spouse needs care, the non-applicant spouse (or 'community spouse') is allowed to keep a higher, annually adjusted amount, known as the Community Spouse Resource Allowance (CSRA).
- What is Countable? Countable assets generally include bank accounts, stocks, bonds, and some real estate other than your primary residence.
- How to "Spend Down": If your assets exceed the Medicaid limit, you must reduce them. Allowable ways to spend down assets include paying off debts, modifying your home for accessibility, or purchasing medical equipment. You can also pre-pay for funeral expenses using an irrevocable funeral trust.
Protecting Your Assets from Nursing Home Costs
Early planning is essential to protect your assets from being completely spent down by nursing home costs. Here are several strategies to consider, ideally with the help of an elder law attorney.
Long-Term Care Insurance
Long-term care (LTC) insurance is designed to cover the costs of nursing homes, assisted living, and in-home care. Buying a policy early can be a smart way to protect your savings. However, it can be costly and may not be an option for those already in need of care.
Medicaid-Compliant Annuities
For married couples where one spouse needs nursing home care, a Medicaid-compliant annuity can be a solution. This turns a lump sum of assets into a regular income stream for the community spouse, helping the applicant spouse meet Medicaid's asset limits. These annuities must be irrevocable and non-transferable.
Trusts for Asset Protection
Certain types of trusts are powerful tools for safeguarding assets from long-term care costs.
- Revocable Trusts: A revocable living trust does not protect assets from nursing home costs because you still control the assets within it.
- Irrevocable Trusts: An irrevocable trust transfers ownership of your assets to a trustee. This makes the assets inaccessible to creditors and not counted for Medicaid eligibility, as long as the transfer occurred outside of the Medicaid look-back period.
The Medicaid Look-Back Period
Medicaid has a strict 60-month (five-year) look-back period for applicants of long-term care. The government reviews your financial records for the five years prior to your Medicaid application to identify any uncompensated transfers, such as giving away money or property to family members. If such transfers are found, a penalty period of ineligibility for Medicaid benefits is imposed, the length of which is based on the value of the transferred assets. This rule is why early planning is so critical.
Medicaid and Estate Recovery
After you pass away, the state's Medicaid program has the right to recover the costs it paid for your nursing home care from your estate. This is known as Medicaid Estate Recovery. The state can place a lien on your property, such as your home, and recover its value upon the property's sale. However, there are exceptions. In some states, recovery may not occur if a surviving spouse or a minor, blind, or disabled child lives in the home. Proper estate planning can help minimize the impact of estate recovery.
Comparison of Asset Protection Strategies for Nursing Home Care
| Feature | Self-Pay with Savings | Long-Term Care Insurance | Medicaid | Irrevocable Trust (5+ years out) |
|---|---|---|---|---|
| Funding Source | Your personal savings and investments. | Private insurance premiums pay for care. | Federal and state government funding. | Assets placed in the trust pay for care or remain sheltered. |
| Asset Protection | Little to none; assets are spent down to pay for care. | High protection; insurance covers costs, preserving personal assets. | High protection; assets below state limits are safe. | Excellent; removes assets from eligibility calculation. |
| Eligibility Risk | None, but risk of exhausting all savings. | Potential to be denied if health is poor at time of application. | Must meet low-income and asset limits, with strict look-back rules. | Risk of penalty if created within 5 years of Medicaid application. |
| Control over Assets | Full control until assets are spent. | Full control over non-insured assets. | Limited control; most income goes to the nursing home. | Little to no control; trustee manages assets. |
Conclusion: Proactive Planning is Paramount
What happens to your assets when you go to a nursing home depends heavily on your financial situation and how well you have planned. For those who can afford it, long-term care insurance offers a straightforward way to pay for care without jeopardizing their entire estate. For others, Medicaid is the necessary path, but it requires navigating complex spend-down and look-back rules. Relying on Medicaid without prior planning means risking the depletion of your lifetime savings before you can qualify. By working with an elder law attorney, you can explore options like irrevocable trusts, life estates, or spousal protection rules to safeguard your assets. Waiting until a crisis strikes significantly limits your choices, so planning ahead is the single most important step you can take to protect your assets and secure your financial future.
