How To Protect Parents’ Assets From Nursing Homes

How To Protect Parents' Assets From Nursing Homes - Protecting Assets From Nursing Home Costs

Wondering how to protect parents’ assets from nursing homes? 

In this article, you’ll learn about: 

  • how to protect your parents’ assets from nursing homes
  • setting up a trust (if that’s the best option)
  • how much Medicaid will pay for (and how much you’re responsible for)
  • the Medicaid 5-year look back period
  • your options for protecting your parent’s assets

Let’s dig in. 

Table of Contents

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How To Protect Parents' Assets From Nursing Homes

Keeping your parents’ assets safe from nursing home costs is key to their long-term care planning

Here are some steps to protect a parent’s assets from nursing homes:

  • Start Early: Talk about long-term care plans with your parents as soon as you can. Early planning opens up more ways to safeguard their assets.
  • Know Medicaid Rules: Each state’s Medicaid rules are different. Learn about the eligibility criteria, income and asset limits, and look-back periods. This will help you avoid penalties.
  • Get Legal Advice: Connect with an elder law attorney. They have the expertise to guide you through complicated regulations and can build a plan to protect your parents’ assets.
  • Think About Long-Term Care Insurance: This insurance can pay for your parent’s nursing home care. This way, their assets can be used for other purposes.
  • Transfer Assets: Give assets to a trusted family member or set up an irrevocable trust. This can keep your parents’ assets from counting toward Medicaid eligibility. Remember, there’s a look-back period, usually five years, so plan in advance.
  • Use Assets Wisely: If your parents don’t qualify for Medicaid, use their assets for things like home modifications, medical equipment, or other care-related expenses. This can make their life better.
  • Set Up Income-Only Trusts: These trusts help your parents keep some control over their income while their assets stay safe from nursing home costs.
  • Make A Caregiver Agreement: This is a legal agreement where a family member agrees to care for your parents for pay. This can cut down nursing home costs and protect assets.
  • Check Out Annuities: Certain annuities can turn assets into income. This might help your parents qualify for Medicaid and keep their assets safe for future needs.
  • Look Into Veteran Benefits: If your parents are veterans, they may qualify for Department of Veterans Affairs benefits. This can help pay for nursing home costs.

Finally, always work with an estate planning attorney and financial planner. 

They can provide expert advice based on your state’s laws and your parents’ unique situation. 

This is crucial for the best outcome for your parents.

Read More: How To Avoid Nursing Home Taking Your House

Setting Up A Trust To Protect A Parent’s Assets From Nursing Homes

Creating a trust to protect a parent’s assets from nursing home expenses requires several things. 

An estate planning attorney is crucial for this process. 

Here’s a straightforward guide on setting up a trust to protect your parent’s assets:

  1. Meet With An Attorney: Trust creation is complex and laws differ by state. Get guidance from a nursing home planning attorney specializing in elder law or estate planning. They’ll help ensure the trust is set up right.
  2. Choose The Trust Type: Usually, an irrevocable trust is used to protect assets from nursing home costs. Assets in this trust can’t be withdrawn or managed by the person who created the trust. This secures the assets.
  3. Pick A Trustee: The trustee will handle the trust as per the trust agreement. This person should be reliable and good with financial matters.
  4. Prepare The Trust Agreement: This legal document sets up the trust. It contains details like the trust’s name, the trustee, the beneficiaries, and the trust’s terms. Your trust attorney will likely draft this agreement.
  5. Move Assets To The Trust: After the trust agreement is ready, transfer assets to the trust. This can include property, bank accounts, investments, and more. Note, these transfers should be made at least five years before Medicaid application. This avoids the Medicaid look-back period and possible penalties.
  6. Manage The Trust: When the trust is set up and funded, it needs proper management. This usually involves handling trust assets, making investment decisions, and giving assets to beneficiaries as per the trust’s terms.

Keep in mind, assets in an irrevocable trust aren’t owned by your parents anymore. 

The trust’s terms usually can’t be changed and assets generally can’t be removed. 

So, understanding the implications of such a trust is key. 

Our trust attorneys can guide you through setting a trust up. 

Read More: How Can I Pay For Assisted Living With No Money?

Understanding The Cost Of Nursing Home Care

Let’s look at the cost of nursing home care that you can expect to pay. 

What Affects Nursing Home Costs

The reality of nursing home costs can be daunting. 

It’s a significant factor in planning for the future, particularly for elder care. 

Understanding these costs is the first step towards:

  • effective financial planning 
  • safeguarding your parents’ assets

Several factors influence the cost of nursing home care:

  1. Level Of Care: The amount of care your parent needs is one of the most significant factors. Nursing homes provide a range of services from assistance with daily living activities, such as bathing and dressing, to skilled nursing care for those with severe health conditions. The more intensive the care required, the higher the cost.
  2. Location: Geographic location plays a big role in the cost of nursing home care. Generally, costs are higher in urban areas where the cost of living is higher. States like Alaska, New York, and Hawaii typically have the highest costs, while states like Oklahoma and Missouri are among the lowest.
  3. Type Of Room: The type of room can also impact the cost. Private rooms offer more privacy but come at a higher cost compared to semi-private rooms that are shared with another resident.
  4. Additional Services: Extra services not included in the basic room and board can add to the overall cost. These can include things like physical therapy, specialized care for conditions like dementia, and recreational activities.

How Much Is A Nursing Home Per Month?

On average, the cost of a nursing home per month is:

  • $7,756 per month for a semi-private room
  • $8,821 per month for a private room

But, these costs can vary widely depending on:

  • geographic location
  • the type of facility
  • the level of care required

Does Medicare Pay For Nursing Homes?

Medicare does offer some nursing home coverage, but it’s limited and specific.

It mainly covers short-term skilled nursing or rehab services. 

Let’s say a patient goes into a nursing home after a hospital stay of three days or more. 

In this case, Medicare Part A will pay all the nursing home costs for the first 20 days.

From the 21st to the 100th day, the patient needs to pay a part of the cost. 

This is known as a co-payment. 

Medicare will pay the rest.

After 100 days, Medicare stops paying for nursing home care.

Medicare doesn’t cover long-term or custodial care in a nursing home. 

This includes help with daily activities like bathing, dressing, or eating. 

When such care is needed, people usually rely on:

  • Medicaid
  • private insurance
  • their own savings

How Much Does Medicare Pay For Nursing Homes?

Medicare’s coverage for nursing home care has limitations and specific conditions.

Under Medicare Part A, skilled nursing care is covered in certain situations. 

Typically, this happens after a hospital stay

Medicare fully covers the cost for the initial 20 days.

From day 21 to day 100, you need to pay a coinsurance, which is $185.50 per day

After day 100, Medicare stops covering the costs. 

You’re then responsible for all expenses.

It’s important to note that Medicare doesn’t cover long-term or custodial care

These types of care often occur in nursing homes. 

They involve assistance with daily activities like:

  • bathing
  • dressing
  • eating
  • not skilled nursing care

Protecting Assets From Nursing Home Costs

Estate planning is crucial for securing your future or your loved ones’, especially for potential long-term care needs. 

Starting this process early gives you more ways to protect assets and ensure quality care.

Proactive vs Reactive Approach

A proactive approach to estate planning has many benefits. 

It gives you time to learn about different strategies and legal tools like wills, trusts, and powers of attorney. 

You can make well-informed decisions and set plans in place long before they’re needed. 

This approach brings peace of mind and a smoother transition if long-term care becomes necessary.

If you’re reactive and wait until a crisis, you often make rushed decisions under stress. 

This can lead to poor outcomes. 

You might face more restrictions or penalties, especially with Medicaid’s rules about asset transfers.

Read More: Low-Income Housing For Seniors Based On Income

The Medicaid 5-Year Look Back Period

Understanding the Medicaid Look-Back period is key in estate planning.

It’s a timeframe when Medicaid reviews your financial transactions.

They use it to see if you’ve transferred assets for less than their fair market value. 

If you transfer assets during the Look-Back period, you may face penalties. 

Specifically, you could become ineligible for Medicaid for a certain period. 

This period length depends on the value of the assets transferred.

For example, let’s say you transferred assets equivalent to the cost of 10 months of nursing home care.

You might be ineligible for Medicaid for 10 months. 

This highlights why early estate planning and informed decisions are important. 

The more proactive your planning, the better you can protect your assets.

The Medicaid 5-year lookback period is designed to keep people from giving away or transferring their assets to qualify for Medicaid.

Here’s how it works:

  • Period Of Examination: When you apply for Medicaid to cover the cost of long-term care, the state will examine your financial records for any transfers of assets you made in the previous five years. This five-year span is what’s known as the “look-back” period.
  • Asset Transfers: If the state finds that you’ve transferred assets for less than their fair market value during this look-back period, you may be penalized.
  • Penalty Period: The penalty is a period of time during which you will be ineligible for Medicaid. The length of this penalty period is determined by dividing the amount of assets transferred by the average monthly cost of nursing home care in your state. For instance, if you transferred $50,000 and the average monthly cost of care in your state is $5,000, you would be ineligible for Medicaid for 10 months.
  • Start Of Penalty Period: The penalty period doesn’t start when the transfer is made, but rather when you’re residing in a nursing home and would otherwise be eligible for Medicaid.
  • Fair Transfers: Not all transfers are penalized. For example, transfers to a spouse or a child who is blind or disabled typically don’t incur a penalty.

Read More: How To Get Power Of Attorney For An Elderly Parent

How To Avoid A Nursing Home Taking Your House

Protecting your home from being claimed by a nursing home or for long-term care costs can be complex. 

You can consider several strategies, but remember, they may impact taxes and Medicaid eligibility

Always seek advice from an estate planning attorney or financial advisor. 

Here are some common strategies:

  • Joint Ownership: Add a co-owner, like a spouse or adult child, to your home’s deed using joint tenants. This can help protect the home. In many states, if a spouse or a disabled or minor child lives in the home, it’s not considered an asset for Medicaid.
  • Irrevocable Trusts: Put your home in an irrevocable trust. This stops it from being an asset for Medicaid. But, you must do this at least five years before applying for Medicaid due to the look-back period. Once in the trust, the home can’t be sold or gifted without the trust beneficiaries’ consent.
  • Life Estates: In a life estate, you give or sell your home to your children or others, but you keep the right to live in it for life. This can stop the home from being an asset for Medicaid, but you must set it up for at least five years before applying for Medicaid.
  • Caregiver Child Exemption: If your child lived with you and cared for you, preventing you from entering a nursing home for at least two years before you entered a nursing home, they might qualify for the “caregiver child exemption”. This lets you transfer the home to them without any Medicaid penalties.

Read More: The Biggest Mistake Parents Make When Setting Up A Trust Fund

Nursing Home Asset Protection Strategies

Here are strategies you can use to protect your assets from nursing homes. 

Legal Transfers Of Assets

Asset protection involves legal transfers of assets. 

This helps shield these assets from Medicaid’s strict asset limits. 

There are two common methods:

  • Gifting To Family Members: You can transfer assets, like money or property, to your children or other relatives. But remember, if you gift within Medicaid’s five-year look-back period, the gift may still count toward your assets.
  • Creating A Life Estate: In this arrangement, you transfer property ownership to someone else. However, you keep the right to live in it for life. It protects the property from being sold to pay for nursing home costs. But, like gifting, creating a life estate can fall within Medicaid’s look-back period.

Read More: Who Owns The Property In An Irrevocable Trust

Asset Protection Trusts

Trusts can protect assets from nursing home costs. 

But, not all trusts can do this. 

There are two key types of Medicaid asset protection trusts:

  • Irrevocable Trusts: If you place assets into an irrevocable trust, you generally can’t take them out again. Since you don’t technically own these assets anymore, they don’t count toward Medicaid’s asset limit (after the look-back period). But you lose control over these assets once they’re in the trust.
  • Revocable Trusts: In contrast, you can remove assets from a revocable trust. As you still control these assets, they count toward Medicaid’s asset limit.

A carefully crafted irrevocable trust can effectively protect your assets from being used for nursing home costs.

Read More: What Happens To An Irrevocable Trust When The Grantor Dies?

Long-Term Care Insurance

Long-term care insurance covers costs that other insurances don’t, like:

  • nursing homes 
  • in-home care

When planning your estate, weigh the benefits and costs of this insurance.

  • Benefits: Long-term care insurance covers high costs of long-term care. This protects your assets. It also gives you more care choices and may let you stay at home longer.
  • Costs: On the downside, long-term care insurance can be costly. Premiums may also rise over time. There’s also the risk of paying premiums for years without needing long-term care.

Annuities And Promissory Notes

Annuities and promissory notes are financial tools that can be used in estate planning.

  • Annuities: An annuity is a contract with an insurance company. You make a lump sum payment or a series of payments. The insurer, in return, agrees to make periodic payments to you in the future. Some annuities can help you qualify for Medicaid by turning countable assets into income.
  • Promissory Notes: A promissory note is a promise to pay a certain amount of money under specific terms. Money lent via a promissory note is not considered a gift in some cases and therefore not subject to Medicaid’s look-back period.

Both annuities and promissory notes carry potential risks and benefits. 

Their effectiveness in your estate planning strategy will depend on your circumstances. 

Always consult a financial advisor or estate planning attorney before using these strategies.

The Role Of A Medicaid Planning Attorney

A Medicaid planning attorney:

  • helps people plan for long-term care costs 
  • guides them through the complex Medicaid application process 

Here’s what they do:

  • Check Eligibility: The attorney looks at a client’s finances to see if they’re eligible for Medicaid. They understand the rules about income and assets and can help the client arrange their finances to meet these rules.
  • Protect Assets: The attorney advises on how to keep assets safe while qualifying for Medicaid. This might involve creating trusts, making certain transfers, or changing countable assets into exempt ones.
  • Help With Applications: Medicaid applications can be tough. They need a lot of documentation and understanding of the system. A Medicaid planning attorney helps with this process. They make sure all necessary documents are correctly prepared and sent in.
  • Plan For The Future: These attorneys help clients plan for their long-term care. They discuss options like home care, assisted living, nursing homes, and how to pay for these services.
  • Plan In A Crisis: If a person suddenly needs long-term care, a Medicaid planning attorney can help with fast planning. This protects as many assets as possible and speeds up Medicaid eligibility.
  • Handle Appeals And Fair Hearings: If a Medicaid application is denied, the attorney can help with the appeals process. They can represent the client at fair hearings if needed.
  • Manage Estate Recovery: Sometimes, Medicaid tries to get funds back from a recipient’s estate after they die. A Medicaid planning attorney can give advice on how to limit or avoid estate recovery.

In short, a Medicaid planning attorney ensures that people:

  • are financially ready for long-term care 
  • can get the benefits they deserve

FAQs About How To Protect Parents' Assets From Nursing Homes

These are other questions our clients ask about how to protect parents’ assets from nursing homes. 

What Happens To Assets If You Go Into A Nursing Home?

When you enter a nursing home, different things can happen to your assets depending on your insurance and whether you qualify for Medicaid.

  • Private Payment: If you have enough assets or income, you may need to pay for the nursing home care out-of-pocket. Your assets get used to cover the cost until they deplete to a certain level.
  • Long-Term Care Insurance: If you have long-term care insurance, it can cover a portion or all of your nursing home costs. Your assets may not be affected as much.
  • Medicaid: If your assets are below a certain limit, you might qualify for Medicaid. Medicaid can cover nursing home costs. However, Medicaid eligibility rules are complex and vary by state. Some assets count towards the limit, while others are exempt.
  • Asset Protection Strategies: Legal strategies like trusts might protect some assets. But, the implementation of these strategies must happen years before you enter a nursing home due to the Medicaid look-back period.
  • Spousal Implications: If you’re married, rules are in place to protect a portion of your assets and income for the spouse still living at home.
  • Estate Recovery: After death, Medicaid may seek to recover costs from your estate, which could affect what you leave to heirs.

Can A Nursing Home Take Your House If It Is In A Trust?

If your house is in an irrevocable trust, a nursing home generally cannot take it

Once you put your house into an irrevocable trust, you no longer own it. 

The trust owns the house. 

This means it’s typically protected from nursing home costs and Medicaid. 

However, there’s a catch. 

You must set up the trust and transfer your house into it at least five years before you apply for Medicaid. 

This is due to Medicaid’s five-year look-back period. 

If you set up the trust or transfer your house into it during this period, you could face penalties. 

Medicaid could delay your eligibility for benefits. 

So, the key is to plan early.

Does A Irrevocable Trust Protect Assets From A Nursing Home?

Yes, an irrevocable trust can protect assets from a nursing home. 

When you place assets into an irrevocable trust, they are no longer legally yours. 

This means they typically aren’t counted as personal assets when assessing eligibility for Medicaid, which often pays for nursing home care. 

Remember that transfers to an irrevocable trust need to be done at least five years before applying for Medicaid. 

If transfers are made within this period, it could lead to penalties or delay eligibility for Medicaid.

Hiring A Trust Attorney

If you want to protect your parent’s assets from nursing homes, fill out the form below. 

At The Hive Law, we understand the importance of:

  • protecting your hard-earned assets 
  • ensuring your family’s future
  • not losing everything to creditors and lawsuits
  • properly (and legally) distributing assets 

We only accommodate a limited number of clients each month.

So don’t miss your opportunity to work with our trust fund lawyers.

Benefits of our trust services:

  • Tailored solutions to fit your unique needs and goals
  • Expert guidance in navigating complex tax and legal matters
  • Preservation of your wealth for future generations
  • Streamlined asset distribution according to your wishes

Avoid the pitfalls of inadequate estate planning strategies:

  • Creditors seizing your assets
  • Lawsuits jeopardizing your family’s financial security
  • Family disputes over inheritance
  • Costly and time-consuming probate processes

Talk soon.

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