The median cost of long-term care in a nursing home (in 2024) for a private room is $330 per day or $10,025 per month. Semiprivate rooms cost about $1,000 less per month. Even for a semi-private room, this adds up to over $100,000 per year, a number that is unreachable for most people.
Medicaid is often used to provide long-term care in a nursing home or assisted living facility. However, Medicaid has strict income and asset limits. While you don’t have to sell your house to qualify for Medicaid, your home may be subject to estate recovery after you die to pay your Medicaid bills. Medicaid can put a lien on your assets, such as your home, and collect on the debt after you have passed away through the Medicaid Estate Recovery Program (MERP).
After the death of a person 55 or older who received Medicaid benefits or under age 55 who received long-term care services, Medicaid will start the process of recouping the expenses for long-term care by filing a claim on the estate. People use many legal and financial strategies to keep their home in their family. Here are some commonly used options to consider.
Transfer Ownership of Your Home
If you gift your home to a family member or close friend, you no longer own it, and it is not an asset Medicaid considers when determining eligibility. However, Medicaid has a look-back period (typically five years, but can vary) during which Medicaid can evaluate the transfer and use this information when determining your Medicaid eligibility.
Using a life estate, you transfer ownership of your home to someone else but retain the right to live in the home for the rest of your lifetime. By creating a life estate, you have an ownership interest in your home for the rest of your lifetime. The person you transfer home ownership to (remainderman) also has an ownership interest in your home but cannot exercise this right until you have passed away.
When gifting your home, it is important to consider potential capital gains taxes. The recipient of a gifted home usually takes over the cost basis of the home. This value will be used to determine capital gains taxes if the recipient sells the home. Laws vary by state and depend on whether the home was gifted before or after the owner’s death.
Establish a Trust
Another option is to place your home in an irrevocable trust. An irrevocable trust is managed by a trustee you designate using trust documents that you create, but you no longer own the assets placed in an irrevocable trust, and you cannot make any changes to the trust once you have created it.
A Medicaid Asset Protection Trust is a specialized trust that allows you to receive income from the trust while still protecting your home and other financial assets. The trustee will manage the principal in the trust. As a Medicaid recipient, you will still be able to access any income from a pension or Social Security benefits. However, you will need to be aware of your state’s Medicaid income limits.
Talk to your Katzner Law Group estate attorney about a Medicaid trust. The trust needs to be carefully structured to meet Medicaid requirements. The Medicaid look-back period applies, so pre-planning is essential. Laws vary by state.
Purchase Long-Term Care Insurance
Long-term care insurance is intended to defray the cost of expenses, such as a stay in a nursing home, assisted living facility, adult day care, or home health care for people who cannot perform all or some of the basic activities needed to live independently.
However, long-term care insurance is expensive. Premium costs increase with age and depend on health status and the level of benefits selected. To receive benefits, policyholders typically must show they require assistance with at least two activities of daily living or show signs of cognitive impairment, such as dementia. Evaluate the policy carefully for policy benefits, benefit periods, the impact of inflation, waiting periods, and the approval process.
Consider a Medicaid-compliant annuity.
A Medicaid-compliant annuity allows policyholders to spend down their assets by selling them and receiving regular monthly income payments in return. While they are an option for anyone, married couples with one healthy partner can benefit most from them. Annuities provide income for the partner who does not need care and establish eligibility for Medicaid for the partner who needs care.
Unlike other options that require significant pre-planning, a Medicaid-compliant annuity can help people spend down their assets to qualify for Medicaid benefits while still providing an income for a healthy spouse.
However, not all annuities are Medicaid-compliant. Annuities have specific requirements, so it is important to talk with a financial advisor who is knowledgeable about Medicaid rules.
It is essential to plan at least five years in advance if you want to avoid a nursing home taking your home. If you can afford it, start giving financial gifts to family members. By gradually reducing the size of your estate, you may be eligible for Medicaid benefits if you need them.
Establishing a trust or using financial planning strategies to increase Medicaid eligibility takes pre-planning, and laws vary by state. Your estate planning attorney can help you consider all your options and develop a plan that meets your needs. We have extensive experience in establishing trusts and other estate planning tools.
Give us a call today at 866-395-1786 or contact us online to schedule a meeting and discuss your unique financial needs. Let us be your trusted partner on the path to financial success.