Long-term care for seniors is one of the biggest gaps in America’s safety net. For many of us, as we get older we will require longer and better care. In some cases, this can mean a health aide or other forms of in-home care. However, often, this can mean moving into a facility such as a nursing home. The problem is that long-term care facilities are very expensive. We’ll dive into the details.
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Nursing Home Expenses
In many parts of the country, living at a nursing home can cost more than $100,000 per year, costs which are on top of any other needs or expenses. Medicare will typically pay for very little, if any, of this.
This is a glaring omission in what is supposed to be the signature safety net for older Americans, especially since the Department of Health and Human Services estimates that around 70% of retirees will need long-term care at some point.
It also means that paying for long-term care will become a critical issue for most households. As you figure out how to care for yourself or a loved one, it’s important to make sure that the critical assets in your life are protected.
Why Do You Need To Protect Your Parent’s Assets?
When it comes to protecting assets, there are two main issues:
Payment is the issue of liquidating assets to pay the high costs of nursing home care. As families find ways to pay for their loved ones, one of the biggest problems becomes how to pay expensive bills without sacrificing important assets. For example, can you pay for long-term care without selling the family home? Or cherished items?
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At the same time, it’s also important to protect assets from creditors. There are some programs that help you to pay for long-term care, but they typically do so based on need. They may base payment on your net worth or may attach a lien to major assets. Just like with liquidation, this can threaten assets ranging from your retirement account to your home.
Enrolling In Medicaid
The issue of protecting your assets is particularly acute in the context of Medicaid.
While Medicare typically does not pay for nursing home care, Medicaid does. Medicaid is state-run, so each program’s coverage and requirements differ, but they’re all required to offer some form of coverage for long-term care.
Many, if not most, Medicaid programs require that you contribute to the cost of care. This can mean a lot of things depending on the state. Typically, however, it means that you must qualify for the program, meaning that you have exhausted your savings. It can also mean that the state will get a claim on certain assets, like your home, based on how much coverage you use.
In both cases, this can put your family’s assets at risk.
7 Steps to Help Protect Your Parent’s Assets From Nursing Homes
Long-Term Care Insurance
The first way to protect your or your parent’s assets is with long-term care insurance that will pay for nursing home care. These plans can offer a range of coverage, from home health aides to permanent residents. It all depends on the program and your (or your parents’) needs.
The advantage of an insurance plan is that it can be comprehensive. If your plan covers your needs, then there is no risk to other assets. The nursing home stay will be paid for and the rest of your assets are safe.
The downside is cost. Long-term care can be very expensive, especially if you buy it later in life. Paying for the premiums and any deductibles can create exactly the problem that you’re trying to solve, depending on your financial situation.
That said, the $2,200 average premium for a long-term care plan is a whole lot less than the $100,000 price tag of a nursing home. If this is financially an option, it’s a good one.
Establish Irrevocable Trusts
Putting assets in an irrevocable trust means you no longer own them. They are controlled by a third-party trustee and are managed subject to the rules you establish. You can’t make changes to this trust or take back assets, but they’re also not counted as your assets for the purpose of Medicaid eligibility.
Establish a Life Estate
A life estate can establish many of the same goals as an irrevocable trust. A life estate is a legal entity that holds real estate such as your home. You are then allowed to continue living there as a “lifetime tenant,” meaning that you have what’s known as the “right of possession” but not the “right of ownership.” After your death, the estate would pass on to whoever you named as the “remainderman.”
Similarly to an irrevocable trust, since you no longer technically own the home, the Medicaid program can’t count it toward eligibility, nor can the state put a lien on it. When you die, you can pass the home to your loved ones by naming them as the remainderman.
Give or Receive Gifts
The gift tax has very high limits. In 2023, you can give away up to $12.92 million worth of assets over the course of your lifetime tax-free, along with another $17,000 worth of assets per recipient each year. This limit goes up every year.
Separate Assets
For married couples, you may also want to begin filing separate taxes.
One of the biggest complications in property and taxes is determining what belongs to who in a married couple. In particular, any assets that you accumulated during your marriage (such as the house and retirement accounts) may be considered marital assets for the lifetime of the marriage.
However, depending on your state’s tax and property laws, you may be able to establish legally separate finances. If you can do so, the first step will be to begin filing separate tax returns.
Bottom Line
If you or your parents need to go into a nursing home, paying for that might be a problem. Whether through long-term care insurance or Medicaid, it’s important to make sure that your major assets are safe from this process. Check your state’s Medicaid program or the state where your parents live for more information.
Retirement Saving Tips
Planning for retirement can be difficult on your own, but a financial advisor can help with this. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Check out SmartAsset’s retirement calculator to see if your savings are on pace, and check out our Social Security calculator to see how much supplemental income you can expect in retirement.
Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
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