Planning for the golden years of life should be an opportunity to celebrate your accomplishments and dream about the possibilities ahead. Yet, while it’s fun to imagine taking up hobbies, travel, or volunteer work, there are some important realities to consider. 

One that stands out is the possibility of needing long-term care, particularly in a nursing home. While these facilities offer an option for essential care in our later years, they come with a hefty price tag. 

It sparks a valid question: How do you protect your hard-earned assets from the high costs of nursing home care?

The thought of spending years of savings on nursing home expenses can be daunting, especially in contrast to the things you want to spend money on. But with the right strategies and asset protection plans, you can shield your hard-earned assets from high nursing home costs.

5 ways to protect your assets from nursing home costs

Understanding how nursing home costs can impact your assets is the first crucial step in developing a strategy to protect and preserve your legacy.

There are four ways nursing home costs can jeopardize your assets:

• High room costs of over $8,000 per month
• Liquidation of assets to pay for long-term care
• Creditors placing liens on your assets to repay financial assistance debts
• Medicaid coverage placing a claim on assets like your home after you exhaust your savings

Thankfully, you can take proactive steps to protect your assets from the significant costs associated with long-term care while still enjoying your golden years and maintaining the legacy you want to leave behind.

1. Get long-term care insurance

Long-term care insurance offers a financial buffer by covering nursing home costs up to a set limit. You pay monthly premiums in exchange—a far less burdensome expense than the direct cost of nursing home care. 

Long-term care insurance also offers more financial autonomy compared to relying solely on Medicaid. Instead of having to spend down your assets to qualify for coverage, you can retain your assets while still getting financial help for nursing home expenses.

2. Create irrevocable trusts (if an option)

By transferring ownership of your assets into an irrevocable trust, such as a Medicaid Asset Protection Trust, you effectively remove them from your personal estate and place them under the management of a trustee. This reclassification means that the assets are no longer considered personal property. Instead, they belong to the trust.

This arrangement reduces the value of your personal estate. By strategically placing enough assets into the asset protection trust, you can potentially reduce your estate’s value to a level that qualifies you for Medicaid while still preserving a legacy for your loved ones.

However, timing is crucial when setting up one of these. Medicaid has a five-year look-back period in which they review all financial transactions and count any significant financial transactions against you. As such, it’s important to establish your trust well before you anticipate needing long-term care.

3. Buy a Medicaid-compliant annuity

Purchasing a Medicaid-compliant annuity involves converting your assets into income, which potentially allows you to qualify for Medicaid without having to deplete your savings. Since Medicaid is designed for low-income individuals and has a $2,000 asset limit per individual, converting assets into an annuity can be a smart move to protect your assets.

When you buy a Medicaid-compliant annuity, you make a lump sum payment to an annuity provider. The money is then invested and returned to you in the form of regular, predictable payments. Your assets essentially become an income stream that can also act as a steady source of funds for personal use. This conversion can reduce the value of your assets, making you eligible for Medicaid.

Not all annuities qualify for Medicaid, so consult with a financial advisor and/or an estate planning attorney to make sure your annuity meets Medicaid compliance criteria. That way, you ensure it serves its intended purpose—without any unwanted financial consequences.

4. Transfer your residence reserving a life estate

A life estate can be an effective legal strategy that decreases your estate’s value for Medicaid eligibility while preserving your property rights. 

This approach involves transferring the future ownership of your property to a selected heir or beneficiary such as a family member or a close friend. This person becomes the “remainderman” while you retain the right to live in and use the property for the rest of your life.

The remainderman will gain full ownership of the property upon your passing, ensuring that your property is passed down to your chosen heirs. 

How does this apply to Medicaid and long-term nursing home costs? The value of the property in the life estate isn’t included in the total value of your estate when applying for Medicaid. This can help you qualify for Medicaid without the need to spend down your assets.

5. Gifting financial assets

Another strategy that can help protect your assets from nursing home costs is gifting financial assets to loved ones.

By transferring assets like a portion of your savings as gifts to family members, you can effectively reduce the overall value of your estate and potentially qualify for Medicaid. The value of these gifted assets may not count towards Medicaid’s asset and income eligibility requirements, safeguarding a portion of your wealth.

Again, it’s essential to be mindful of Medicaid’s five-year look-back period. Asset gifts made during this period could potentially result in a penalty period in which you’re not eligible for Medicaid benefits.

How an attorney can help

Steering through the complexities of asset protection concerning nursing home costs requires specific knowledge and experience. That’s where consulting with an elder law attorney or estate planning attorney is invaluable. 

These legal professionals understand the unique challenges and needs that arise as you plan for your later years, including protecting assets from the potential drain of nursing home costs. The solutions to these challenges are often intricate, complex, and multi-faceted, so it’s crucial to have legal guidance to preserve your legacy.

Here are a few specific ways an experienced attorney can help:

• Creating tailored estate plans: An attorney can craft estate plans that take state-specific laws and your specific situation into account.
• Navigating Medicaid Rules: Elder law attorneys have a deep understanding of state and federal Medicaid rules, so they can help you plan in a way that maximizes your chances of qualifying for benefits while preserving your assets.
• Implementing asset protection strategies: An attorney can advise on various strategies like purchasing Medicaid-compliant annuities or setting up irrevocable trusts, ensuring they align with legal requirements.

Safeguard your future with an experienced attorney

The importance of safeguarding your hard-earned assets from long-term care costs cannot be overstated. Knowing you have a professional looking out for your best interests can provide significant peace of mind during what can be a stressful planning process. 

Here at the law firm of Shann M. Chaudhry Esq., Attorney at Law PLLC, our team of empathetic and experienced elder law and estate planning attorneys is dedicated to protecting what matters most to you. Contact us today to schedule your affordable consultation and see how we can help you preserve your legacy.