Planning for long-term care can be emotional. Beyond arranging for a loved one’s care, families may also wonder what happens to a family home when one spouse makes the move to senior living while the other does not, and if the home or other assets impact eligibility for programs like Medicaid.
Knowing more about how asset protection works and how assets impact eligibility for certain benefits won’t make these moves easy. However, they can make them a bit less overwhelming during a highly emotional time.
What is Asset Protection?
Asset protection refers to legal and financial planning methods that preserve a person’s resources (e.g., real estate) while preparing for future care needs (e.g., assisted living or skilled nursing care). These strategies may include:
- Managing countable assets
- Structuring income sources
- Understanding eligibility requirements for programs like Medicaid
Common Asset Protection Strategies
Medicaid Planning
Medicaid is a federal and state-level government program that helps cover certain long-term care services for individuals who meet financial and medical need requirements (usually extremely low-income, disabled, and/or older adults).
Medicaid Five-year Look-back Period
Medicaid planning is the process of planning for Medicaid qualification to receive specific benefits, such as financial assistance for senior living. One key component of Medicaid planning is accounting for the five-year look-back period. During this time, Medicaid reviews financial transactions to identify asset transfers or gifting made below market value; families may make these transfers in an attempt to qualify for Medicaid benefits without losing assets. However, if penalizing transfers are identified during this look-back period, it can delay Medicaid eligibility.
Community Spouse Protections
These situations—and what happens to assets—may become complicated when one spouse does not need residential care (healthy spouse or community spouse) but the other does (institutionalized spouse). Fortunately, for married couples, Medicaid includes protections for the healthy spouse. These protections help ensure that the spouse who remains at home can retain a portion of the couple’s assets and income while the institutionalized spouse accesses the care they need.
Important Medicaid provisions for married couples in this situation include:
- Community Spouse Resource Allowance (CSRA), which allows the community spouse to keep part, but not all, of the couple’s assets.
- Minimum Monthly Maintenance Needs Allowance (MMMNA), which helps ensure the spouse’s income meets basic living needs.
- Exempt assets, such as a primary residence (under certain conditions), personal belongings, and one vehicle.
Probate & Estate Planning
In some cases, states may pursue estate recovery to recoup Medicaid-related care costs; estate recovery typically occurs during probate. Estate planning helps determine how assets are distributed after a person’s passing. Proper planning here may help beneficiaries keep assets that would otherwise be seized during the estate recovery process.
Life Estate Deeds
A life estate deed lets an individual live in their home while transferring ownership interest to someone else, often a trusted family member. These deeds may help married couples with varying care needs keep a shared family home.
Long-term Care Insurance
Long-term care insurance is a type of health insurance that may help offset long-term care costs, such as those associated with assisted living or memory care. For some families, this type of insurance is a key part of a broader long-term care planning strategy.
Irrevocable Trusts
An irrevocable trust allows individuals to transfer assets into a trust that they no longer control directly. Once established, these assets are generally not considered part of the individual’s countable assets for Medicaid purposes.
Medicaid-compliant Annuities
This annuity converts a lump sum of assets into a structured income stream. These annuities must meet specific federal and state requirements to align with Medicaid rules. In some cases, this strategy may help reduce countable assets while providing income for the healthy spouse.
Social Security Planning
While Social Security alone may not cover all care costs, it often serves as a consistent income source. Namely, Social Security benefits can play a role in covering care costs, especially for married couples with different care needs.
Personal Care Agreements
This contract, made between a caregiver and an individual receiving care, outlines services provided and compensation terms. When structured properly, these agreements may allow families to compensate caregivers while documenting expenses for financial and Medicaid planning purposes.
FAQs
What happens financially when a spouse goes to a nursing home?
When one spouse requires long-term care, financial rules typically separate the couple’s assets into those available for care and those protected for the healthy spouse. Programs like Medicaid include allowances such as CSRA and MMMNA to help ensure the spouse remaining at home can maintain financial stability.
Does a family trust protect assets from Medicaid?
Some trusts, such as irrevocable trusts, may help protect assets if established well in advance. Revocable trusts, however, are generally still considered part of countable assets.
What happens to your bank account when you go into a nursing home?
Bank accounts are usually considered countable assets for Medicaid eligibility. That means that individuals may need to “spend down” these funds on care or allowable expenses before qualifying for assistance.
What is Medicaid Spousal Impoverishment Protection?
Medicaid Spousal Impoverishment Protection helps prevent financial hardship for the healthy spouse when the other spouse requires long-term care. It does so through provisions like the Community Spouse Resource Allowance, which allows the community partner to keep some (but not all) of the couple’s assets.
What are the income and asset limits for Medicaid eligibility?
Medicaid monthly income and countable asset limits vary by state, which is why it’s important to speak with either a qualified elder law attorney or Medicaid representative for accurate information.
What assets count toward Medicaid eligibility?
Medicaid typically divides assets into two categories: countable assets and exempt assets. Countable assets are assets that, as the name implies, count toward Medicaid eligibility; couples must spend them down in order to qualify for benefits. Countable assets may include cash and real estate investments. Exempt assets, meanwhile, are assets exempt from Medicaid’s income and asset limit requirements. They may include (within defined limits) personal belongings, one vehicle, and a primary residence.
What if my loved one has too much money to qualify for Medicaid?
If assets exceed Medicaid eligibility limits, families may explore strategies such as spend-down planning, annuities, or trusts.
Planning Ahead for Long-term Care Costs
Preparing for long-term care can feel overwhelming, especially if spouses have different care needs. Learning how to protect assets if one spouse goes into senior living can help families feel reassured that both parties have their needs met in a comfortable environment.
Disclaimers: This article is for informational purposes only. It does not constitute professional, financial, healthcare, or legal advice, express or implied.