Employees in the nursing home will help residents wear sweaters inside their rooms.
SmartAsset and Yahoo Finance LLC can earn fees or revenue through links to the content below.
As we age, many of us need some form of long-term care, both at home and institutional settings. Long-term care costs can increase quickly, as nursing homes average over $90,000 a year.
Medicaid helps to cover these costs, but there are strict eligibility requirements that may require you to use your assets first. If you pay the funds to a recipient who is later deemed ineligible, Medicaid may place a lien on the primary residence.
Consult with your financial advisor to ensure that your long-term care needs are met.
Fortunately, some legal tools, including trusts, can protect assets from the costs of Medicare and nursing homes. However, these tools have limitations, costs and risks to understand before moving forward.
Long-term care is an important service for those who are sick or simply need help as they get older. However, this care can be expensive. For example, according to Genworth, the median annual cost for semi-private nurse rooms exceeded $93,000 in 2021, and is expected to rise to around $135,000 by 2033. At that rate, paying for long-term care can cause problems for many people's financial security.
Medicaid can get tabs, but strictly limits eligibility for people with limited financial means. To qualify, you need low income and limited assets. The exact amounts are governed by state law and vary considerably, but some can have a source of funding of less than $2,000. If the limit is exceeded, you usually need to use your own funds to take caution until your assets shrink sufficiently to meet the limit.
Medicaid also has a five-year lookback rule. This means that if you try to meet your financial limits by transferring your assets to another person or another entity five years before applying for Medicaid, you will be disqualified.
Medicaid can cover the costs of nursing homes, but you may need to spend assets or transfer them to a trust.
Many techniques can help people with assets exceeding Medicaid limits protect against program eligibility rules, allowing them to benefit without spending their resources first. Strategies such as pensions, home equity exemptions, and trusts can help protect your assets.
For example, let's say you and your spouse have $1 million in the IRA you transferred to the trust. Doing so could protect it from Medicaid, but you need to create the right kind of trust. For example, an irrevocable Medicaid asset protection trust protects your IRA. However, you will need to transfer your assets to the trust at least five years ago before you need Medicaid.
The story continues
If you do this correctly and do it outside of the five-year lookback period, your IRA will not count towards Medicaid eligibility. Keep in mind that you will permanently lose control of your $1 million IRA assets.
Transferring an IRA to a revocable Living Trust will maintain your assets' control, but still count towards Medicaid eligibility limits.
Talk to your financial advisor about how to use your trust or other tools.
In addition to irrevocable trusts, other options can help protect assets from Medicaid spending requirements and cover the costs of long-term care. They are:
Financial gifts to family, friends and other individuals can reduce your assets. However, gifts over $17,000 per year per recipient count towards $12.92 million in 2023 as a lifetime gift and real estate tax exemption.
Nursing home workers use canes to help residents take a walk.
Some strategies can protect assets from Medicaid, but they are not the perfect solution. Here are some drawbacks:
It is also worth considering that less wealth on paper means getting lower care. It may not be a valuable transaction for all people in all circumstances. Consider talking to your financial advisor about how long-term care payments are.
Protecting a $1 million IRA from potential nursing home costs involves trade-offs. To help Medicaid pay long-term care costs, it must meet rigorous financial tests. If you have too many assets, you may need to spend savings savings until you can meet Medicaid guidelines. An irrevocable trust, life estate, and Medicaid-compliant pension could potentially protect assets from Medicaid eligibility requirements.
Working with a financial advisor will help you coordinate your Medicaid plan with your overall retirement income plan. SmartAsset's free tools match up to three financial advisors in your area. Advisor matches can be interviewed to determine which is appropriate. If you are ready to find an advisor who can help you achieve your financial goals, get started now.
Tracking your savings is a key component of your retirement plan. Luckily, you can use SmartAsset's retirement calculator to quickly check if you're saving roughly for your retirement.
Keep your emergency fund on hand in case of unexpected costs. Emergency funds must be liquid – with accounts that do not have the risk of major fluctuations like the stock market. The trade-off is that the value of liquid cash can be eroded by inflation. However, using a high profit account will allow you to earn compound interest. Compare savings accounts from these banks.
Are you a financial advisor trying to grow your business? SmartAsset AMP helps advisers connect with leads and provide marketing automation solutions, allowing them to spend more time creating conversions. Learn more about SmartAsset amplifiers.
