Asset protection– It’s something that many people don’t think about until it’s too late. When a parent or loved one enters a nursing home, the cost of care can quickly eat away at their life savings. In order to protect your parent’s assets from nursing home costs, there are a few things you can do.
In this article, we’ll discuss what costs you should expect, what Medicaid will cover, and how to protect your (and your parents’) assets.
One of the biggest decisions you may have to make concerning your elderly parents is whether or not to place them in a nursing home. Unfortunately, nursing home care is not cheap. According to a study by Genworth Financial, the average nursing home costs $8,910 per month for a private room and $7,800 per month for a semi-private room. However, in New York, a nursing home costs on average $15,000 – $20,000 per month. In addition, you will likely be required to pay a security deposit equal to the monthly fee.
However, by planning ahead, you can help ensure that your parents receive the care they need without breaking the bank.
Medicaid is a joint federal and state program that helps pay for medical care for those with limited income and resources. However, eligibility for Medicaid is determined by level of need, and it’s important to consider what assets your parents have before applying for Medicaid.
In order to be eligible for Medicaid assistance for nursing home costs, your parents’ assets must fall below a certain limit. This limit is set by the state and changes annually. Once your parents have qualified for Medicaid assistance, the government will pay for all of their nursing home care costs. Your parents will be required to turn over their monthly income (Social Security, pension, etc) toward the cost of their care.
The assets of a married couple are considered jointly owned, regardless of how they are titled. This means that each spouse has an equal interest in the property. When it comes to Medicaid eligibility and benefits, this joint ownership can have a significant impact. For example, if one spouse needs to go into a nursing home, the other spouse may not be able to keep all of the couple’s assets. This is because Medicaid will take into account the value of all of the couple’s assets in determining eligibility for benefits.
However, there are spousal impoverishment rules designed to protect the financial well-being of married couples when one spouse requires nursing home care. Under these rules, the healthy spouse can keep a certain amount of assets and income. Further, New York recognizes spousal refusal, wherein the healthy spouse can refuse to make any assets and income available for use by the spouse in the nursing home. Under those circumstances, Medicaid must and does cover the entire costs of care for the nursing home spouse. However, Medicaid has the right to seek recovery against the healthy spouse in the future.
The Medicaid look-back rule requires applicants to disclose all financial transactions made by themselves and their spouse (if applicable) in the past five years. This includes gifts, property transfers, and the sale of assets. All transactions during this five-year look back period are assumed to have been made for the purpose of qualifying for Medicaid and will be subject to a penalty period. During this time, the applicant will be ineligible for Medicaid benefits.
The Medicaid look-back rule is complex and can have a significant impact on an applicant’s eligibility for benefits. As a result, it is important for anyone who is considering applying for Medicaid to consult with an experienced Elder Law attorney to ensure they do not inadvertently jeopardize their eligibility.
If your parents are considering making a gift of property or other assets in order to meet the Medicaid eligibility requirements, it’s important to know that not all gifts will be penalized. Some types of property are exempt from the look-back rule. For example, gifts between spouses and gifts to a disabled child are exempt. Transfer of title to the homestead is exempt if made to a spouse, disabled child, minor child, caretaker child, or sibling with an equity interest under certain qualifying conditions.
Trusts are a popular way to protect assets, and for good reason. When drafted properly, a trust can help manage and protect assets. For instance, let’s say your parents own a house they’d like to leave to you or another family member. If they transfer ownership of the house into a trust, they can continue to live there and use it as before (if they maintain a life estate). However, since the house is held by the irrevocable trust instead of being owned outright by your parents, it won’t count toward their asset totals for Medicaid purposes. But beware: the house must be transferred into the trust five years before an application for Medicaid benefits in order to escape the look-back period and penalty periods.
Trusts can also be used to ensure you (or another person your parents desire) inherit the home after your parents’ passing.
One way to protect assets is an irrevocable trust. This type of trust cannot be changed or terminated once it has been established (except in very limited circumstances). The assets in the trust become the property of the trust itself. The trustee is responsible for distributing the assets according to the terms of the trust.
Irrevocable trusts are also subject to the five-year look-back rule. That being said, it’s imperative that you speak with an experienced Elder Law attorney who can help you navigate the process and ensure that your parents’ assets are protected.
An asset protection trust is a type of irrevocable trust. Asset protection trusts are designed to protect assets from being depleted in the event your parents need to cover the cost of long-term care, such as home care or nursing home care. By transferring assets and/or real property into the trust, they can reduce their countable assets, which could allow them to qualify for Medicaid coverage. However, they must do so five years prior to needing care. As such, early planning is key.
Long-term care insurance is a type of insurance coverage that helps to cover the cost of home care, nursing home care, or care in an assisted living facility. However, many people are skeptical about paying for insurance if they’re unsure whether they will ever need care. Fortunately, there are hybrid insurance policies available that offer the benefits of long-term care insurance while offering a death benefit if the coverage is never needed during life. Essentially, your parents would fund the policy with a lump sum, which could later be used for long-term care benefits. And if they don’t need the long-term care benefit, there is a life insurance death benefit that will go to their beneficiaries. These policies can be a helpful way to plan for future long-term care costs while also providing some security for loved ones if coverage is never needed.
The sooner your parents start planning for long-term care, the better. Speak with an Elder Law attorney at Cona Elder Law, and we’ll help you navigate the process and protect assets now. Contact us today to get started.
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