How to protect parents' assets from a nursing home

Aging is a part of life, and it's very common for adult children to adopt the role of caretaker as their parents get older. When family members need more support caring for senior loved ones, it’s not uncommon to explore other living arrangements such as assisted living or a nursing home, where older adults can receive professional care everyday. Unfortunately, elder care today is very expensive, and the high costs can cause financial stress. If your family is considering more supported living arrangements for a senior loved one, it’s important to make a plan detailing how you'll protect your parents' assets from a nursing home.

Why do you need to protect assets from a nursing home?

A 2024 Genworth Study found that the median nursing home costs in the United States are $8,669 per month for a semi-private room and $9,733 per month for a private room. For most Americans, this is significantly more than their rent or mortgage. Of course, you still have your own living costs, and the vast majority of us cannot afford to spend an additional $9,000 per month on a parent's nursing home.

Instead, the money for nursing care typically comes from an older adult’s life savings and other personal assets. The proceeds from selling a family home or emptying out a retirement account may serve to supplement any fixed income, but every month the high costs of care can deplete a senior loved one’s savings. However, there are ways to help protect your parents’ assets when moving them into a nursing home, particularly if they can qualify for Medicaid.

How does Medicaid interact with nursing homes and assets?

It's possible that Medicaid will pay for a large portion of nursing home costs, but it depends on the situation. To qualify for institutional long-term care Medicaid, an individual must meet income requirements, and it's common that Medicaid will not start paying until the applicant has paid all that they can out of pocket.

Medicaid is available in every state, but each state has its own guidelines and eligibility requirements. Income standards are usually based on the federal poverty level. In New Jersey, for example, those under 65 have a monthly income limit of $1,732 for individuals or $2,351 for couples. In addition to income, countable assets like checking and savings account balances, certificates of deposit (CDs), stocks, and bonds all factor into eligibility. In most states, you may retain up to $2,000 as an individual and $3,000 as a married couple outside of your countable assets.

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Exempt assets and Medicaid spend down

Depending on the state, certain assets can also be exempt, such as a principal residence, car, personal belongings, savings for funeral expenses, and any other assets that  are not accessible (like those in an irrevocable trust).

Once the Medicaid applicant has spent down their income and/or assets to become eligible (this is known as a Medicaid spend down and there are rules around how to do this correctly), all of their income must be used to pay for the nursing home where they reside. They are, however, permitted to keep a monthly allowance and a deduction for medical needs like private health insurance. The allowance amount depends on living arrangements, the type of nursing facility, and state rules.

In the past, families would avoid exceeding Medicaid's income limits by transferring a loved one's assets into the names of other relatives while the loved one was in nursing care. Congress has since made that loophole much harder to access by instituting a five-year "lookback" at all asset transfers. If Medicaid discovers money that was transferred within the past five years, it imposes a penalty, which will delay when the program starts paying.

Ways to protect assets from a nursing home

The long and short of it: Nursing home costs can wipe out assets quickly, and qualifying for Medicaid can be tricky. Consider these strategies to preserve as much as possible.

Purchase long-term care insurance

Long-term care insurance (LTCI) is a type of insurance policy that is distinct from traditional health insurance. LTCI policies typically provide financial assistance for the costs of long-term care, including help with daily activities like eating, bathing, and getting around, as well as skilled nursing assistance. 

LTCI policies often cover nursing home costs, but they are expensive, with an average annual premium for a 55-year-old couple landing around $2,080. Additionally, insurers typically require you to get a policy years before you plan to go into long-term care, and will certainly deny coverage for a patient who has already entered a nursing home.

Create a Medicaid-compliant annuity

An annuity converts assets into income streams, allowing individuals to turn assets like stocks or bonds into regular income. Medicaid-compliant annuities may be useful for both lowering a parent's asset values and providing some income for life expenses. Medicaid's income and asset limits are very strict, which is why a Medicaid-compliant annuity can be a good way to help a parent meet eligibility requirements. 

Before purchasing an MCA, consult a Certified Medicaid Planner or an elder law attorney to understand exactly how the plan will work and how it will impact nursing home expenses and inheritance planning.

Transfer assets to an irrevocable trust

A trust is a legal contract that allows the creator (grantor) to dictate how their assets should be managed and distributed. An irrevocable trust cannot be changed or terminated once it is established. This estate planning strategy is usually set up to protect assets from taxes and pay beneficiaries, but it's also useful in elder care planning because irrevocable trusts are not considered countable assets by Medicaid.

A designated trustee, like a grown child, manages the execution of the trust's will, which may function to dispense an inheritance early, provide the trustor with a source of income, make charitable donations, or a range of other specifications. While an irrevocable trust is a good estate planning vehicle, it's vitally important to set it up ahead of Medicaid's five-year lookback period. Otherwise, you will lose the benefits of setting up the trust in the first place.

Establish a life estate

A life estate is a legal arrangement that permits a beneficiary to live in or use a property for their lifetime. Like an irrevocable trust, a life estate is not included in countable assets by Medicaid.

Establishing a life estate is a savvy move for older adults with multiple properties. While their primary residence will not be included in their countable assets, any additional properties will. They can further reduce their countable assets by setting up a life estate for a child or relative to have full use of the property until their death. When this so-called "life tenant" passes, property ownership transfers to the "remainderman," or whoever is designated as the beneficiary receiving the house in the owner's will.

This is a savvy way to both reduce countable assets and keep a property in the family.

Consider gifting assets

Cash or asset gifts reduce a parent's countable assets and may make it easier to qualify for Medicaid. Again, they’ll need to make significant gifts at least five years before applying for Medicaid to bypass the lookback period. Additionally, making substantial charitable gifts will make a parent eligible for tax credits or deductions that can further preserve assets in the years leading up to needing nursing care.

Consult an elder care expert

Nursing homes are very expensive, but there are ways to reduce the financial burden. While this guide offers some good tips and tricks, it's important to consult an expert for tailored strategies to suit your specific situation. Elder law attorneys can help with trusts, annuities, and estate planning. In addition, both elder law attorneys and Certified Medicaid Planners can help with Medicaid planning to set your family up for the future. Remember to check out Greenlight's Learning Center for additional resources.

FAQs

What happens to your assets if you go into a nursing home?

Families can elect to pay for a nursing home in several ways, including using personal savings and assets, to cover the high costs of long-term care. In order to get Medicaid to cover some of the costs to save your senior loved one’s assets and savings, they must meet certain eligibility requirements. These requirements are particularly stringent, so if your family’s caregiving plan is to use Medicaid at some point, you will often have to find ways to reduce the applicant’s countable assets before Medicaid's five-year lookback period.

Can a trust protect assets from a nursing home?

Irrevocable trusts are not included in Medicaid's assessment of countable assets. As such, they're a very useful tool for older adults who wish to protect their assets and still have nursing care covered by Medicaid. It’s important to make sure the trust is set up exactly how the owner wants it, because changes cannot be made and an irrevocable trust cannot be terminated once it is created.

Can a nursing home take your house?

No, a nursing home cannot take your house. However, the government might repossess a property if you use Medicaid to pay for a nursing home. Medicaid's rules do not count a primary residence or life estate as countable assets, but it will consider vacation properties or investment properties as additional assets that it may file a claim on through the Medicaid Estate Recovery Program.