Elder law attorneys provide legal assistance to people who are concerned about the financial challenges that they may face as senior citizens. Without question, long-term care costs are at the top of this list, so you should start to think about a nursing home asset protection plan.
Medicare Won’t Help
The United States Department of Health and Human Services tells us that 35 percent of senior citizens will reside in nursing homes at some point in time. We are all aware of the fact that Medicare is the source of health insurance for the vast majority of senior citizens in this country.
When you combine these two facts, you would naturally conclude that Medicare would pay for a stay in a nursing home. Many people would say that it is not fair, but in fact, Medicare does not cover the custodial care that nursing homes provide.
Nursing Home Costs
It is not easy to pay for nursing home care out of your own pocket. The median annual cost for nursing home care in our area is over $160,000, and the average length of stay is one year. About 13 percent of elders who need care incur bills for five years or more.
A married couple could face two different sets of nursing home bills, so the overall impact can be very significant.
What’s the Solution?
Fortunately, there is a solution that you can implement if you plan ahead effectively. Medicaid will pay for a stay in a nursing home, but it is a need-based program, so there is a $2,000 asset limit.
This is the limit on countable assets, but some assets are not counted. These would include your home, one vehicle, wedding rings, engagement rings, heirloom jewelry, household items, and personal effects.
You can have $1,500 set aside for final expenses and the same amount of whole life insurance. Unlimited term life insurance is allowed, and Medicaid does not count prepaid burial plots.
Implications of Home Ownership
While it is true that your home is not a countable asset for Medicaid eligibility purposes, there are some things that you should know about homeownership in this context.
First, there is an equity limit that is updated annually to reflect current prices. At the time of this writing in 2024, the home equity limit in the state of New Jersey is $1.071 million.
Secondly, you have to be concerned about the Medicaid estate recovery mandate. If you obtain Medicaid eligibility as a homeowner, the program can potentially place a lien on the property after your death. This is assuming it is in your direct personal possession at that time.
There is an exception to this rule. Let’s say that your daughter has been living with you in your home for three years providing a level of care that has allowed you to stay out of a nursing home.
Under these circumstances, you would be able to transfer ownership of the home to your daughter, and it would be protected during Medicaid estate recovery. We used three years as an example, but under the guidelines, the caregiver must provide care for a minimum of 2 years.
Healthy Spouse Allowances
In many cases, there will be a healthy spouse who can still live independently. A person who is in this situation is called the “community spouse” in Medicaid parlance.
There is a Community Spouse Resource Allowance that gives the independent spouse the right to keep half of the countable assets, but there is a limit. For the rest of 2024, the limit is $154,140 in our state.
A Medicaid beneficiary is entitled to a $50 per month personal needs allowance, and the rest of their income must be contributed toward the cost of the care that is being received.
This requirement is waived if the healthy spouse is relying on the income to maintain a reasonable standard of living. The max 2024 Medicaid Monthly Maintenance Needs Allowance is $3,853.50, and the minimum is $2,465.
Nursing Home Asset Protection Trust
How do you develop a financial profile that will enable Medicaid eligibility if and when you need long-term care? It can be done through the utilization of an estate planning tool called an irrevocable, income-only Medicaid trust.
Here’s how it works. You establish the trust, and you name a trustee to act as the administrator. This will be an irrevocable trust, so you will not be able to be the trustee, and you will have no direct access to the principal for the rest of your life.
You fund the trust with countable assets. A lot of retirees rely on the income that is generated by assets that are invested. When you convey the assets to the trust, you can continue to receive distributions of the trust’s earnings until you apply for Medicaid to pay for long-term care.
Five-Year Look-Back Period
Timing is the key to the successful execution of the strategy because of the look-back period. You have to fund the trust at least five years before you apply for Medicaid coverage. If you fail to comply with this rule, your eligibility is delayed.
To put it simply, if you fund the trust with enough to pay for two years of nursing home care according to government guidelines, your eligibility would be delayed by two years. This formula would apply to any divestitures within the 60-month timeframe.
Schedule a Consultation Today!
As you can see, a nursing home asset protection plan should be embedded in your broader estate plan. If you are ready to get started, we are here to help. You can send us a message to request a consultation appointment at our Warren, NY estate planning office, and we can be reached by phone at 908-222-8803.
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