When you or someone you care about is going to have to enter into a nursing home, life may never be the same. Laws and rules about what assets you can have if you’re going into a nursing home are sometimes murky. Protecting assets from nursing home costs are difficult to understand.
No matter how you look at it, protecting your assets may be necessary, but nursing homes are costly. Are there ways to protect some of your assets from nursing home costs? The goal of any asset protection program is to limit exposure of assets to potential creditor claims.
This includes your personal property and real estate. That’s why having an asset protection strategy is so essential before going into a nursing home. The informational guide below will give you some facts, direction and a good way forward in asset protection.
Does Medicare Cover Nursing Home Costs?
Medicare doesn’t cover long-term care at nursing homes. Medicare does cover nursing home care in two areas. One area is called original, and the other area is called the advantage plan.
Original Medicare has two plans. Part A is hospital insurance, and Part B is medical insurance. After you pay your deductible, Medicare pays an approved amount, and then you pay the rest of your deductible or co-share owed.
This plan and payment process works if you need short-term skill care for illness or an accident.
Medicare Advantage Plans
Advantage plans are offered by private Medicare contractors. The plans provide all of Part A and Part B listed above. But the Medicare Advantage Plans don’t help pay for care in a nursing home unless the nursing home has a contract with the plan.
But there are other government subsidy programs which do help pay for your nursing home costs. Medicaid is both a federal and state program that helps people who meet certain low-income levels pay for nursing home care.
Most nursing homes accept Medicaid payments. So after you spend down all your assets, your nursing home will, in most cases accept Medicaid payments. Medicaid is always based on your income and personal assets or resources.
Long-Term Care Insurance
Medicaid does provide for purchasing long-term care insurance to help pay for most of your long-term care needs if the worst happens. Long-term care insurances pay for skilled and non-skilled care.
This includes expenses on things like adult day care, assisted living, medical equipment and more.
You can use your personal savings account money to pay for nursing home care. Many insurance companies will let you use life insurance policies to pay for long-term care due to the expense.
Protecting Assets From Nursing Home Costs
The first strategy in asset protection is to get an asset protection trust. The asset protection trust is a legal way to keep your assets and be able to apply for Medicaid to pay for your nursing home. In an asset protection trust, your assets are transferred to someone you trust.
Someone you trust is usually a friend or family member. But sometimes the question that comes up is, will the recipient of the trust incur any debt or liability that exposes them to creditors? Also, do low-basis assets have the same low-basis value when you transfer it?
Many times those same assets can be distributed to the same trusted person when you die at fair market value. When this happens your trusted family member or friend can receive the increase in value and won’t have to pay capital gains taxes.
An income trust is another strategy you can use for a legal way to protect your assets and be able to apply for Medicaid. If your state is an income cap state it means you have to spend down your excess income. That way you can meet Medicaid’s low-income levels.
But by using Qualified Income Trusts (QIT) to hold your excess income a trustee can be appointed who manages the distribution of funds for acceptable expenses.
There’s another trust called the Pooled Income Trust (PIT). The PIT also holds excess income, but the money is for a disabled person. The person distributing the funds is usually a nonprofit or organization on behalf of the disabled adult.
Private Annuities and Promissory Notes
Many times you may need to transfer your assets because your long-term nursing care is an almost immediate issue. Unfortunately, there is something called, the look-back period. The look-back period is where the government can look back at your financial dealings to see if any assets were transferred within months of you needing long-term care.
If the government finds out this is the case, you are hit with fines and penalties. Many people accept the fines and penalties. Because, in the end, you can purchase a private annuity or promissory note to provide you with a monthly income.
You can then use the monthly income plus your social security to pay the nursing home during the penalty period. Once you go on Medicaid, whoever has your private annuity or promissory note spends it down, and they can use the original money you invested in it.
In some states, Medicaid does allow transfers between spouses that aren’t subject to look-back periods. If you want to transfer your money and assets to your spouse’s name so they can take care of you that’s possible. That being said, once Medicaid is giving services, Medicaid can come to the spouse and ask for contributions.
But in most states, both spouses are counted towards Medicaid eligibility so you can’t transfer your assets to your spouse.
This strategy is called the caregiver agreement. This is when a personal care agreement is drawn up for the person needing care. The agreement lists the extra services not covered by Medicaid, which are outside what a nursing home would provide.
Then you can have a family member, a friend, or a referral to provide these services and get paid income for doing it. The services are always paid in advance, and any payments you make reduce your Medicaid asset resources.
Your Final Strategy
It doesn’t matter which of the above strategies you select. You need to make sure you take into account your long-term care costs if the worst happens. You can’t count on Medicare pay for it.
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