Protecting Your Parents’ Assets From Nursing Home Costs

The aging U.S. population means that more people will likely need nursing home care in the coming decades. Meanwhile, the cost of nursing home care is increasing — and expected to keep increasing.

With the exorbitant cost of nursing home care, many families worry about depleting their loved ones’ life savings to pay for the care they need. Private health insurance does not cover nursing home care, and while long-term care insurance is available to cover nursing home costs, these plans are also expensive and may come up short for long-term stays. This leaves millions of Americans reliant on Medicaid to pay for nursing home care — a far from perfect solution that usually involves spending down assets to qualify. With proactive Medicaid planning, though, it is possible for someone to qualify for Medicaid and still retain their assets. The sooner you start planning, the more options you’ll have for protecting your parents’ assets from nursing home costs.

Odds of Needing Long-Term Care Are High

The lifetime likelihood of needing nursing home care is relatively high. About 70 percent of people who turn 65 today will eventually need some type of long-term care, including nursing home care.

About 1.3 million Americans aged 65 and older currently live in nursing homes, and about 40 percent of today’s 65-year-olds will spend some time in a nursing home before the end of their lives.

Women are more likely than men to need long-term care, and the older a person gets, the more likely they are to need it. At the same time, there has been a growing trend of younger adults (those under the age of 65) living in nursing homes, in part due to Medicaid eligibility expansion under the Affordable Care Act. Research shows that this group increased from 10.6 percent of total nursing home residents in 2000 to 16.2 percent in 2017.

Medicaid expansion has led to more people of all ages qualifying for the joint federal and state health insurance program. Intended as the “payer of last resort” when it comes to long-term care, Medicaid has become the primary nursing home insurance for millions of Americans due to the absence of any other public program covering long-term care and the high private cost of privately paying for nursing home care.

After age 65, more than a quarter of adults receive at least 90 days of nursing home care. Thirteen percent of them receive long-term Medicaid-financed nursing home care.

Medicaid typically pays for 100 percent of nursing home costs and may be the only option available for long-term stays. Long-term care insurance can be purchased, but most policies have limits on the maximum daily or monthly benefit amount and the total lifetime benefit, as well as terms and health requirements that may exclude coverage.

A nursing home stay isn’t necessarily permanent. About 15 percent to 20 percent of admissions are for short-term rehabilitation. Among current residents, the average stay is one year and four months. More than half of residents stay for at least 100 days, while 15 percent of older adults spend over two years in a nursing home.

With nursing home costs typically running $500 to $575 per day, costs can add up quickly. The average nursing home stay of little over a year, or about 485 days, could end up costing close to if not more than $250,000. In urban areas such as New York City, costs are can be even higher.

Extrapolate these costs over multiple years, and they are unsustainable for many families.

Medicaid Planning Strategies

Whether a nursing home stay lasts months, years, or is permanent, you may have crunched the numbers and determined that Medicaid is the only feasible payment option for a parent’s nursing home care.

This is a “good news, bad news” scenario. To qualify for Medicaid, the applicant can have a very limited amount of assets, also known as Resources. New York allows a single applicant to have just $32,396 in order to qualify for Medicaid. If the applicant owns a second home, a business, investments outside of a retirement plan or a whole life insurance policy, they would be way over the limit.

The good news is that not all a person’s assets count against the limit. A home, for example, is exempt if it is being occupied by a spouse or a child who is either disabled or a minor. Someone can also own one car regardless of its value. Even better news is that through estate planning, nonexempt assets can be converted to exempt assets, thereby excluding them from Medicaid calculations assets – but it requires significant planning. These strategies often involve navigating a five-year “lookback period” where past asset transfers are scrutinized to ensure applicants don’t give away assets to qualify for Medicaid. Using an experienced elder law attorney is critical to navigate the complex rules that can help to protect a parent’s assets from nursing home costs and a Medicaid spend down.

Medicaid Asset Protection Trusts (MAPTs)

A Medicaid Asset Protection Trust, also known as a MAPT, is an effective planning tool used to preserve assets in order to qualify for Medicaid. A MAPT holds assets during your parent’s lifetime, after which the assets transfer to beneficiaries (usually children or other family members).

Assets in the MAPT are no longer considered part of your parents’ estate for Medicaid nursing home purposes after the assets have been held within the trust for 5 years. The assets are legally owned by the trust, not your parents. The Trustee, who is often an adult child or children, manages assets within the trust according to the parent’s wishes, and can make funds available when needed provided the terms of the trust allow for withdrawals from the trust.

Creating a MAPT triggers a period of Medicaid ineligibility for nursing home care due to the five-year lookback period. A MAPT is therefore most effective when implemented well in advance of potential Medicaid need, often in as part of a parent’s estate plan.

What if your parent needs long-term care soon and hasn’t done legal planning?

When a health crisis arises for a parent who has not adequately planned or was late in planning and has not completed the 5 years of ineligibility that comes from funding a MAPT, a strategy called The Rule of Halves can still preserve some of the assets. The Rule of Halves strategy uses a promissory note and a companion gift. A promissory note is a legal agreement that allows your parents to lend money to someone (e.g., a family member) who agrees to repay the money with interest over time. This converts a lump-sum asset into a stream of income.

Typically, this strategy allows an experienced elder law attorney to save approximately half of your parent’s assets. This prevents a total spend down of lifetime savings with the assets then being available to support the parent in the nursing home or if the ill parent passes away, the assets then can be passed on to children, grandchildren or other beneficiaries.

Not all states recognize promissory notes for Medicaid planning. In states that do allow them, such as New York, they may be subject to scrutiny by state Medicaid agencies. This is why proper planning by an experienced elder law attorney is vital.

Other Strategies to Become Medicaid Eligible

A strategy to ‘spend down’ some income and/or assets might additionally include a parent devoting funds to needs or wants that can both enhance their quality of life and help them qualify for Medicaid.

• Paying off debts, making necessary home repairs, purchasing a new car, and prepaying funeral expenses are all ways to spend down assets without harming future Medicaid qualification.
• Gifting assets to loved ones outside of the lookback period can reduce countable assets and fit into a gifting while living strategy, but beware of gifting money or assets within the five-year lookback period. Doing so would result in a penalty period without Medicaid.
• If only one spouse needs nursing home care, Medicaid allows the other spouse (the “community spouse”) to retain a certain amount of income and assets and to utilize spousal refusal strategies to attempt to shield additional income or assets.

Because Medicaid laws are complex and every client’s situation is different, there is no “one-size-fits-all” strategy for protecting a parent’s assets from nursing home costs and a Medicaid spend down. The best way to protect assets is to work with an experienced elder law attorney to develop a personalized plan that avoids penalties or disqualification from Medicaid, maximizes asset protection and is flexible if the plan needs to be adjusted.

In summary, the average net worth of Americans is more than $1 million, including nearly $1.8 million for those 65 to 74, and most often there is no need to ‘spend it down’ to qualify for Medicaid if your planning is done wisely and proactively. Click here to schedule a consultation with a local elder law attorney at Pierro, Connor & Strauss, who specializes in asset protection and as well as preparation of a successful Medicaid application.