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As we age, many of us will need some form of long-term care, whether at home or in a facility. With nursing home costs averaging over $90,000 per year, long-term care expenses can add up quickly.
While Medicaid can help you cover these costs, it has strict eligibility requirements that may require you to spend down your assets first. If it pays out funds to recipients who are later deemed ineligible, Medicaid can place a lien against a primary residence or seek to recover money from your estate after your death.
Talk to a financial advisor to ensure your long-term care needs are met.
Fortunately, some legal tools including trusts can protect your assets from Medicare and nursing home costs. However, these tools have limitations, costs and risks to understand before moving forward.
The Long-Term Care Challenge
Long-term care is a critical service for anyone who is ill or simply needs assistance as they age. However, this care can be expensive. For example, the median annual cost of a semi-private nursing home room was over $93,000 in 2021 and it’s expected to rise to approximately $135,000 by 2033, according to Genworth. At that rate, paying for long-term care can pose a problem to many people’s financial security.
While Medicaid can pick up the tab, it strictly limits eligibility to people of limited financial means. To qualify, you must have low income and limited assets. The precise amounts are governed by state laws and vary considerably, but some allow you to have no more than $2,000 in countable resources. If you have more than the limit, you generally must use your own funds to pay for care until your assets have shrunk enough to meet the limits.
Medicaid also has a five-year lookback rule. This means you will be disqualified if you try to meet the financial limits by transferring assets to another person or other entity in the five years before you apply for Medicaid.
Protecting a $1 Million IRA From Medicaid
A number of techniques may help people with assets exceeding Medicaid’s limits protect them from the program’s eligibility rules so they can get the benefits without having to spend down their own resources first. Strategies like annuities, home equity exemptions and trusts can potentially help shield assets.
For example, say you and your spouse have $1 million in an IRA that you transferred to a trust. Doing so would potentially shield it from Medicaid, but you have to create the right kind of trust. An irrevocable Medicaid asset protection trust, for instance, would protect your IRA. However, you’d have to transfer the assets into the trust at least five years before you need Medicaid.
If you have done this correctly and outside of the five-year lookback period, the IRA will not count toward your Medicaid eligibility. Just be aware that you permanently lose control of the $1 million IRA assets.
If you transfer the IRA to a revocable living trust, you will maintain control of your assets but they’ll still count against Medicaid eligibility limits.
Talk to a financial advisor about how to use trusts and other tools.
Other Options
Besides irrevocable trusts, other options can help shield assets from Medicaid spend-down requirements and/or cover the cost of long-term care. They include:
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Financial gifts to family members, friends and other individuals can reduce your assets. But gifts above $17,000 per year per recipient will count against your lifetime gift and estate tax exemption, which is $12.92 million in 2023.
Limits of Asset Protection
While several strategies can shield assets from Medicaid, they aren’t perfect solutions. Here are some downsides:
It’s also worth considering that having less wealth on paper can mean you’ll get lower-quality care. It may not be a worthwhile trade for all people in all situations. Consider speaking to a financial advisor about ways you can pay for long-term care.
Bottom Line
Protecting your $1 million IRA from potential nursing home costs involves trade-offs. In order for Medicaid to help pay long-term care costs, you must meet strict financial tests. If you have too many assets, you may have to spend your savings for care until you can meet Medicaid’s guidelines. Irrevocable trusts, life estates and Medicaid-compliant annuities can potentially shield assets from Medicaid eligibility requirements.
Retirement Planning Tips
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Working with a financial advisor can help you coordinate Medicaid planning with your overall retirement income plan. SmartAsset’s free tool matches you with up to three financial advisors in 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.
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Tracking your savings is an important component of retirement planning. Luckily, you can quickly find out whether you are roughly saving enough for retirement by using SmartAsset’s retirement calculator.
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The post Can a Nursing Home Take Our Assets? We Have a $1 Million IRA and a Trust to Protect Us appeared first on SmartReads by SmartAsset.
Can a nursing home seize your savings? What if your money is in a trust or a Roth IRA? For married and single retirees alike, these are important questions with nuanced answers.
First for the good news: A nursing home cannot simply take your retirement accounts or savings. Short of legal action due to an unpaid bill, you can distribute your assets as you see fit. However, you will have to plan ahead to optimize your end-of-life finances, particularly because in some cases its possible the government could seize assets post-death to pay for nursing home expenses.
Long-term care, especially stays in nursing homes, can be costly. Options for covering these costs include paying out of pocket, private insurance and Medicaid. Your assets, even if they’re in a Roth IRA or certain types of trusts, can potentially impact your eligibility for the latter. If you need help planning for your long-term care needs, consider working with a financial advisor.
Plan Ahead for Long-Term Care
Long-term care, which can include everything from homemaker services and help from a home health aide to nursing home care, is expensive. In fact, the median monthly cost of a private room in an American nursing home is estimated to be $9,584 in 2023, according to GenWorth, an insurance company that offers long-term care coverage. Those costs are expected to increase to nearly $13,000 per month by 2033.
That’s well beyond what most people can afford from their retirement income, and many times what Social Security pays. That’s why it’s important to plan ahead, says Alec F. Root, a chartered financial analyst (CFA) with DBR & Co.
“As with estate planning in general, it is helpful to have these conversations sooner rather than later, especially before one’s health changes and potentially impacts their ability to properly insure themselves,” he told SmartAsset. “Five to 10 years prior to retirement is generally a good time to discuss this subject. A strong estate plan will detail the terms of late-life care, while a good financial plan will account for nursing home care and final expenses.”
Medicare won’t cover the costs of a nursing home or other facilities. Instead, generally, the best way to afford long-term care may be through dedicated long-term care insurance. The earlier you purchase this coverage the less expensive this will be. For a healthy 55-year-old, you can expect to pay between $950 and $1,500 per year for this coverage, according to the American Association of Long-Term Care Planning. At 65, those averages jump to between $1,700 and $2,700 per year. So prepare ahead of time.
Remember, a financial advisor can walk you through your options for paying for long-term care and potentially even help you purchase an insurance policy.
Medicaid Covers Long-Term Care But Has Asset Caps
If you can’t afford long-term care insurance, the next most common option is Medicaid – the government program that provides medical care for low-income households. While its coverage tends to be limited, it does pay for nursing homes, as well. However, it’s important to be aware that through the Medicaid Estate Recovery Program (MERP), it’s possible that someone’s assets may be recoverable by the government to repay nursing home expenses.
Medicaid also has strict income and asset caps, and every state has its own eligibility requirements and scope of coverage. For example, in New York, your income cannot exceed $1,677 per month and your total assets cannot exceed $30,182. However, the state does not count your IRA or Roth IRA toward those total assets.
Note: Medicare, the health care program for all Americans over 65, does not pay for long-term care facilities.
On the other hand, in Massachusetts, your income cannot exceed $1,215 per month and your total assets cannot exceed $2,000. There, the state does include your IRA among those total assets.
Keep in mind that if you have an IRA you’ll have to take required minimum distributions (RMDs) by age 73. These withdrawals will count toward your annual income cap. Roth IRAs, on the other hand, are not subject to RMDs but states may count the portfolio among your total assets, as Massachusetts does. But if you need help calculating your RMDs or managing your Roth assets, consider speaking with a financial advisor.
Trusts and Investments Can Offer Imperfect Protection
If your wealth exceeds these caps, you may have to spend almost all of it in order to qualify for coverage. Then again, there are ways to preserve your assets if you need Medicaid to cover your nursing home expenses.
“Traditional investments can be vulnerable to these financial threats, and that’s precisely why we need to explore alternative avenues,” said Dutch Mendenhall, CEO of RAD Diversified and author of Money Shackles.
You can move your money into assets that your state’s Medicaid program does not count against eligibility limits. Beyond a Roth IRA potentially shielding your assets from Medicaid, many households look to put their money in trusts. Doing so can reduce your on-paper wealth, making you potentially eligible for Medicaid coverage.
“Using a trust, such as an irrevocable trust, is a formidable weapon in your arsenal to shield your assets from the voracious appetite of long-term care costs,” said Mendenhall.
“Placing your assets in an irrevocable trust effectively removes them from your ownership, making them less susceptible to being counted as part of your financial assets during eligibility determinations for Medicaid, he added. “This separation can be a game-changer, potentially preserving your wealth.”
But only an irrevocable trust will work for Medicaid qualification. Assets in a revocable trust, meaning one that you can change or revoke while you’re still alive, still count toward your overall household wealth.
The typical vehicle for this is a form of irrevocable trust known as a Medicaid asset protection trust.
Be aware that there’s usually a ‘look-back’ period during which Medicaid considers your financial transactions leading up to your long-term care application. The assets you transfer into a trust may be subject to this scrutiny, so planning in advance is crucial. Most, if not all, states look back five years.
And if you need help establishing a trust or deciding what kind to set up, find a financial advisor with estate planning expertise.
Bottom Line
This is a complicated answer to the complicated question of whether a nursing home can take your savings. While nursing homes can’t seize your assets, the costs of this care are high and can quickly drain your savings. Experts recommend preparing for these costs with diversified investments, income-generating assets and long-term care insurance. If that’s not an option, using a trust to qualify for Medicaid can be a potential avenue for getting coverage. But the specifics will range widely based on your personal situation, your assets and the state in which you live.
Medicaid Management Tips
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While we didn’t have time to explore the topic fully here, some other options for protecting your assets from Medicaid can include annuities, life estates and even your own home.
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A financial advisor can help you determine whether you could potentially qualify for Medicaid. 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 have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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The post Can a Nursing Home Take Our Assets? We Have a $500k IRA and a Trust to Protect Us appeared first on SmartReads by SmartAsset.
According to a recent study by Genworth Financial, the median cost of nursing home care in the United States was $8,910 per month for a private room and $7,800 per month for a semi-private room in 2021. These costs are significantly higher than your average mortgage or credit card bills and they can be a hefty financial burden. Social Security payments can help offset some of the expenses, but these payments alone won’t cover the total cost of nursing home care. However, if you’re age 65 and older and get Supplemental Security Income, Medicaid can also help you pay for nursing home care. Here’s how it works.
A financial advisor can help you create a financial plan for your medical needs and goals.
Social Security vs. Supplemental Security Income
While they’re somewhat similar in name and both managed by the U.S. Social Security Administration, Social Security and Supplemental Security Income are different programs. Social Security is an earnings-based program that’s paid for with Social Security taxes. It’s available to older adults, disabled, or blind individuals who’ve paid into Social Security through their jobs for a set time period. Your work history and total earnings determine the benefits you receive.
Unlike Social Security, Supplemental Security Income is a needs-based program. This program is generally available to older adults with limited resources and a low income, and it may also be available to disabled or blind individuals of any age. It’s paid for by total tax revenue, not Social Security taxes. The benefits you can get through the Supplemental Security Income program are determined by federal and state regulations related to where you live and your income.
Can You Have Both Social Security and Supplemental Security Income?
If you meet certain eligibility requirements, it’s possible to get both Social Security payments and Supplemental Security Income. However, it’s unlikely the total of both payments will cover the full cost of nursing home care, even in states where the cost is relatively low compared to the median national cost.
For 2023, the average Social Security payment will be around $1,827 per month, and the maximum Supplemental Security Income payment for an eligible individual is $914, or $1,371 for an eligible couple. If nursing home care in your area costs $8,910 per month (the national median), that leaves a shortfall of around $6,169 per month, which is a hefty sum.
If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.
How Medicaid Can Help
Those who qualify for Supplemental Security Income might also be able to apply for Medicaid to help pay for the cost of nursing home care. Medicaid is a program for qualifying low-income Americans. It’s funded by federal and state funds, administered by states, and provides healthcare to around 83 million adults and children in the U.S.
For individuals that meet certain requirements, Medicaid could pay for the full cost of nursing home care. However, there are a few caveats. Your income needs to be lower than $2,563 in most states, and income is counted from the following sources:
The need for care is also determined by each state, and there are often waiting lists for long-term care facilities. Plus, if you do qualify for Medicaid nursing home care, you’ll be required to use most of your monthly income to cover the cost of the room and services.
Still, Medicaid could provide essential financial assistance for qualifying individuals in need of nursing home care and without alternatives. Your Medicaid coverage will provide a daily rate to help cover the cost of a shared room, nursing care, rehabilitation services, meals, medications, and personal hygiene items. But you’ll likely need to pay out-of-pocket for things like a private room, extra meals, comfort items, electronics, phone and internet access, and more.
To get access to Medicaid and its nursing home benefits, you’ll need to apply and meet the program’s eligibility criteria. However, the income threshold is fairly low, so if you have assets like a retirement account, a pension, or an emergency fund, you might not qualify for benefits.
Bottom Line
While your Social Security check can help cover a portion of the cost of nursing home care, it won’t cover the entire cost. Nor will Social Security and Supplemental Security Income combined pay for the full cost of care. But those who qualify for Supplemental Security Income could potentially qualify for Medicaid as well. Nursing home care may be covered by Medicaid in certain cases, but there are some important things to be aware of if you’ll be relying on this program for assistance.
Retirement Tips
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A financial advisor can help you create a financial plan for your nursing home costs. SmartAsset’s free tool matches you with up to three 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.
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Like other types of life insurance, long-term care insurance is typically more affordable the younger and healthier you are when you buy it. SmartAsset’s life insurance guide can help you estimate how much you’ll need and provide quotes.
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The post How to Pay for Nursing Home Care With Social Security appeared first on SmartAsset Blog.
My wife and I are elderly. I have an individual retirement account (IRA) worth about $100,000, and we have a trust set up through our children to protect our assets. If one or both of us have to go into a nursing home, can they take our IRA? What do we need to do to protect it?
-Dawn
Long-term care (LTC), which may include nursing home stays, is expensive and can quickly suck up savings you may have intended for something else.
How do you prevent that from happening? The specific answer depends on variables you didn’t reveal. But in my experience, when people talk about “protecting” assets from LTC costs, they often have Medicaid in mind. So what does that look like? (And if you need more help planning for long-term care costs, consider working with a financial advisor).
Qualifying for Long-Term Care Through Medicaid
Medicaid is often viewed as a “safer” option for long-term care for the simple reason that it is less expensive and therefore less likely to drain your assets. But Medicaid eligibility is governed by strict income and asset limits. While those limits vary by state, having a $100,000 IRA will likely disqualify you from Medicaid coverage.
So now you are faced with a paradox: The assets you want to save by means of cheap healthcare are an obstacle to getting cheap care in the first place.
It is at this point that an estate attorney or well-meaning friend might suggest you rearrange your assets in such a way as to exempt them from the eligibility limits. The idea is to make yourself less wealthy on paper to qualify for Medicaid without actually giving away your assets.
If this sounds tricky, that’s because it often is. For one thing, many states use a five-year lookback period when determining Medicaid eligibility. This means that if you do any fancy asset-shuffling in the five years before applying, your efforts will have been in vain. (And if you need help determining whether you’re eligible for Medicaid, consider matching with a financial advisor.)
3 Ways to Protect Your Assets from Medicaid
If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.
If you’re willing to plan ahead and do your homework, there are a few options for relocating your assets so that you can potentially qualify for Medicaid.
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Annuities: Any money you put into a “Medicaid-compliant” annuity will not count against your asset limit and will be exempt from the lookback period, as well. The catch – and it’s a big one – is that the money is totally locked up, except for whatever periodic payment you receive from the annuity. And that payment will count against the income eligibility limit.
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Home equity: In most cases, any equity you have in your primary residence will not count against the Medicaid asset limit. So you could protect your assets by putting them toward your mortgage or even upgrading your home. But the lookback period also applies here, and in some states, the government may claim part of your home equity to recoup care costs after your death.
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Trusts: You mentioned having a trust already set up, but there is a type of trust designed specifically for this situation. Putting your money into a Medicaid asset protection trust (MAPT) effectively hands it over to someone else, so it is technically no longer yours and does not count against your Medicaid eligibility. Just remember that the handoff must be completed five years before you go on Medicaid.
As you may notice, the common problem with these methods is that they drastically restrict what you can do with your assets. And by taking away your financial independence, to some extent they leave you poor in reality – not just on paper. (And if you need help executing one of these strategies, consider matching with a financial advisor.)
That may be preferable to the alternatives, but it depends on another variable: Why do you want to protect your assets from long-term care expenses, including nursing home costs, in the first place?
Is Cheap Care Worth it?
The options discussed above often make the most sense as estate planning measures. If you do not expect to use your assets yourself and are instead concerned about preserving them for your heirs, perhaps it does not matter if they get locked up in a trust, an annuity or your home equity.
But there is still an elephant in the room. Remember that these asset-protection techniques will ultimately leave you with cheap healthcare and long-term care. And that may impact your access to care and its overall quality.
Ask yourself this: What are you trying to “protect” your money for? Is it worth all the hoop-jumping and the risk of mediocre care in your twilight years? It may be if you want to leave a sizable inheritance behind or save assets for your spouse. (And if you need more help with estate planning, consider working with a financial advisor.)
Next Steps
A middle-ground solution be the best course of action. Something like LTC insurance or an “aging-in-place” strategy may not completely protect your assets from long-term care costs. But such an option could reduce those costs while still providing the care that preserves your quality of life.
Remember, the point of saving money is ultimately for your well-being and that of your loved ones – not just to save it for its own sake.
Tips for Finding a Financial Advisor
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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.
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Consider a few advisors before settling on one. It’s important to make sure you find someone you trust to manage your money. As you consider your options, these are the questions you should ask an advisor to ensure you make the right choice.
Graham Miller, CFP® is a SmartAsset financial planning columnist and answers reader questions on personal finance topics. Got a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.
Please note that Graham is not a participant in the SmartAdvisor Match platform. Find more money insights from Graham at the Wiegand Financial blog.
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The post Ask an Advisor: Can a Nursing Home ‘Take Our IRA?’ My Wife and I Are Elderly. We Have a $100K IRA and a Trust to Protect Our Assets. appeared first on SmartAsset Blog.
Paying for a nursing home can seriously deplete your retirement savings. The government-funded Medicaid program can pay some or all nursing home costs, but it’s restricted to people of very limited financial means. You may be able to qualify for government assistance with nursing home costs, even if you control substantial wealth if you transfer nearly all your assets into an irrevocable trust. An irrevocable trust can protect your money from nursing home costs, but they have costs and drawbacks of their own, including permanently losing direct control of your assets. Talk to a financial advisor to learn about options for paying for long-term care.
Irrevocable Trust Basics
A trust is a legal entity many people create as part of an estate plan. The trust acts as a container for assets transferred into it by the grantor. A trustee is appointed to manage the assets in the trust for the benefit of one or more beneficiaries.
A trust can be revocable or irrevocable. You can make changes to a revocable trust after establishing it, including removing assets from the trust. Irrevocable trusts, however, cannot be changed after establishment. That means transferring assets to the trust is a one-way process. Once in, assets cannot be removed from an irrevocable trust.
Irrevocable Medicaid Trusts
Irrevocable trusts come in several varieties and can help with many different estate planning and other personal finance tasks. Medicaid trusts are the kind used to help reduce the impact of nursing home costs.
More specifically, Medicaid trusts are designed to help people qualify for Medicaid, the government health insurance program. Unlike Medicare, which is not means-tested, Medicaid is only available to people of limited financial means.
The program is administered by states, which determine their own Medicaid eligibility requirements in a variety of ways. In most, the annual income limit is $29,160 or less. This cap includes Social Security and pension benefits as well as wages and investment income. Financial resources such as bank accounts, investments, revocable trusts and real estate typically can’t total more than $2,000. People who have more income and more assets may have to spend their own assets to pay for nursing home care until their assets have declined to the point they meet the Medicaid caps.
An irrevocable Medicaid trust is designed to help someone qualify for Medicaid without having to deplete their own assets. After creating the trust, they can transfer in enough assets to bring them below Medicaid’s caps. Once they have done that, assuming they have followed the rules, Medicaid will pay some or all of their nursing home costs. In this way, an irrevocable trust can protect assets from nursing home costs.
Keep in mind that some people say it’s unethical to use trusts to shield your assets from Medicaid. Others believe it’s perfectly fine, considering the rules and laws set up around Medicaid. Ultimately, whether you use an irrevocable trust to protect your assets from nursing home costs will be based on your financial situation, as well as your thoughts and feelings on the ethics.
Limits of Irrevocable Trusts
Irrevocable trusts have a number of limitations that anyone planning to use one will want to keep in mind. These include:
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One-way transfer. Assets placed in the trust can’t be taken out of the trust for as long as the grantor of the trust is alive.
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Five-year limit. Assets must be transferred into the trust at least five years before the grantor seeks to acquire Medicaid eligibility. Irrevocable trusts can’t help at the last minute.
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Medicaid doesn’t always pay all costs. A Medicaid patient in a nursing home still has to use their own income to pay for most nursing home costs. Medicaid will often pay for most and sometimes all of the costs, but patients usually shoulder some of the financial burden.
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Not all nursing homes qualify. Medicaid only pays for care in certain approved nursing homes.
Other Ways to Protect Assets from Nursing Home Costs
An irrevocable trust is not the only tool available to help with nursing home costs. Here are some of the alternatives:
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Long-term care insurance can cover some or all nursing home costs without having to consider Medicaid eligibility.
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Medicaid-compliant annuities can be used to generate income that isn’t included in Medicaid’s income assessment.
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A life estate transfers ownership of assets in your estate to a spouse, removing them from consideration when determining Medicaid eligibility.
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Financial gifts to family members can reduce your net worth enough to meet Medicaid’s guidelines.
Bottom Line
An irrevocable trust can help you avoid having to use your own assets to pay for nursing home care by making you eligible for Medicaid. Medicaid can pay some or all of your costs, but only if you meet strict financial guidelines for income and assets. Transferring assets into an irrevocable trust, called a Medicaid trust, can help even people with significant assets meet these guidelines, But once assets are transferred to an irrevocable trust, they can’t be retrieved from the trust.
Tips for Long-Term Care Planning
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A financial advisor can help you design a strategy for covering long-term care costs using an irrevocable trust, if appropriate, as well as other methods. 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 have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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Whether you are retired or still working, keeping a budget is a basic tool to help you for prepare for future needs such as paying for a nursing home. SmartAsset’s Budget Calculator can tell you how your spending stacks up to other people in your area.
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If you thinking about purchasing long-term care insurance, be sure to review our picks for the top long-term care insurance providers of 2023.
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The post Does an Irrevocable Trust Protect Assets from Nursing Homes? appeared first on SmartAsset Blog.