Posted by: Stephen F. Aton, Industry Insight
The American Council on Aging reports that the national average cost of a private room in a nursing home is more than $108,000 per year. The annual cost of a shared room is not that high at around $95,000. For most people, after a few months in a nursing home, their financial resources are gone, or at least significantly reduced.
Medicare pays for almost any type of illness or medical care you may need, but it does not pay for nursing home care. Many Americans are looking for ways to cope with the economic tsunami of nursing home costs so they can leave assets to their loved ones.
Information varies widely about the average length of time most people require nursing home care before death. But assuming a relatively short five-month stay in a nursing home, the cost could approach $500,000. If both spouses needed such care (which is not uncommon), the bill could exceed her $1 million. If that happens, you may not have any funds left to pass on to your children or other family members.
However, there are options to deal with the strain. One solution is to purchase long-term care insurance, which can be used to pay a per diem amount for nursing home care. If you are still in your 50s or early 60s, such insurance may be affordable. Insurance premiums increase as you get older. If you decide to get insurance, don’t wait too long. By the time many people realize they have to do something, they are no longer able to afford insurance.
Medicare does not pay for nursing home care, but Medicaid does. But qualifications are required. If you have too many assets, you won’t qualify until you spend up to the amount you can keep without being disqualified from the Medicaid program.
To qualify, all available income must be used to pay the bill, up to the full amount of the monthly nursing home bill. Income is defined to include employment wages, alimony, pension and Social Security payments, IRA withdrawals, and interest and dividend payments.
To qualify, your property value must not exceed $5,726 and you must require the level of care provided by the nursing home. If you live in the home or plan to return to it, the home is exempt from the calculation up to an equity value of $688,000. A person who enters a nursing home generally does not qualify for this exemption, but if a spouse lives in the home, regardless of the amount of equity, it will count as an available asset for Medicaid purposes. not.
However, by planning ahead, you may be able to keep some or most of your assets from being consumed by nursing home costs. You may want to protect special assets to pass on to your children. Examples include family properties, farms, and private residences. Or you may want to pass on the income you have accumulated to your children or other family members.
A viable option for protecting assets such as a personal residence is to create an irrevocable trust and transfer the assets to it. You can retain the right to live in your home for the rest of your life, and upon your death, the title passes to your children or other beneficiaries on a graduated tax basis, avoiding capital gains taxes.
Although you cannot serve as trustee of an asset protection trust yourself, you can appoint a child or separate legal entity as trustee. You cannot receive principal distributions, and usually no income distributions, from the trust. You can place other assets in the trust, but you need to leave enough assets outside of the trust and under your control so that you have enough money to live the way you want.
To prevent assets placed in a trust from being counted as assets for Medicaid eligibility purposes, the transfer to the trust must occur at least five years before the date you apply for Medicaid benefits. This allows you to go beyond the so-called five-year “look-back period,” which prevents you from receiving benefits for a certain period of time if you make a gift or sell property for less than its fair market value.
Asset protection trust strategies work best when you have time to plan ahead. However, there are measures you can take even after entering a nursing home. However, planning ahead is the best way to ensure that your assets are passed on to your family without being consumed by nursing home costs.
Stephen F. Aton is a Springfield attorney and owner of Aton Law Firm LLC, specializing in estate planning, corporate law, and real estate law. Contact him at [email protected].
