While so many people are financially prepared for the amount they will need in retirement, many fail to consider how their situation might change due to a disability. Unfortunately, a disability is the most common reason for nursing home placement. By educating yourself on relevant Medicaid laws and different methods of asset protection, you can maintain your standard of living if your spouse requires long-term care. Protecting assets is always a complicated situation so you may find it beneficial to speak with a financial advisor who is well-versed in the practice.
What Happens to Your Assets When Your Spouse Goes into a Nursing Home?
When your spouse goes into a nursing home, they might be eligible for Medicaid to pay for their care. The state you live in will decide your spouse’s eligibility and will only count your spouse’s assets when calculating Medicaid eligibility. The spouse not living in the nursing home (known as the “community spouse”) is usually allowed to preserve up to half of the couple’s assets. Known as the community spouse resource allowance (CSRA), this regulation allows the community spouse to receive up to $148,620 from the couple’s assets in 2023.
Unless their income is above a certain threshold, the community spouse will not need to help with the nursing home costs even if they are still working. Conversely, if the community spouse’s income level is low, they may be entitled to a portion of the income of the spouse going into the nursing home (known as the “institutionalized spouse”). There are other ways that assets can be protected in addition to the generic legal rights of the institutionalized spouse.
What Is the Minimum Monthly Maintenance Needs Allowance (MMMNA)?
The calculation determining how much money a community spouse keeps is called the minimum monthly maintenance needs allowance (MMMNA). Medicaid’s spousal protection laws stipulate a minimum of $2,465 per month in 48 states, including the District of Columbia. That minimum is $2,835 in Hawaii and $3,080 in Alaska due to the higher cost of living in both states. The maximum amount is $3,715.50 per month. Once calculated, the government does not count this as income when deciding if the institutionalized spouse qualifies for Medicaid.
Additionally, suppose you or your spouse are trying to get on Medicaid and have given assets to your family members in the last five years. Gifts could make the spouse in the nursing home ineligible for a certain period. The government would extend the ineligibility according to the value of the assets and the state’s average rate for nursing home care. These are things that can be avoided and planned for in advance to maximize the dollars both you and your spouse can have available in this situation.
How to Protect Assets if Your Spouse Goes into A Nursing
If your spouse goes into a nursing home, it doesn’t mean you have to sink your hard-earned savings and retirement accounts into expenses for your institutionalized spouse. Instead, the following are four ways you can utilize your finances to reap some type of benefit from your nest egg while still having Medicaid pay for nursing home expenses.
1. Buy a Medicaid-Compliant Annuity
A Medicaid-compliant annuity can help the institutionalized spouse qualify for Medicaid. Paying for an annuity can deplete a couple’s resources, which could actually help a couple in this situation. The benefit is that the institutionalized spouse has fewer reportable assets and will more likely be eligible for Medicaid assistance. Additionally, the community spouse will receive monthly payments from the annuity and use them however they like instead of nursing home expenses.
2. Draft a Life Estate for Your Real Estate
A life estate legally gives ownership to a spouse and gives the other spouse the status of ‘remainderman,’ meaning they are designated to receive the property upon the spouse’s death. Once in effect, a life estate stops state governments from trying to take the property. Whether the spouse passes away in their home or a nursing home, the remainderman inherits the property.
A property transfer through a life estate counts towards Medicaid’s asset-transfer period of five years. If the institutionalized spouse passes away within five years of drafting a life estate, the community spouse may have to pay a hefty fine to Medicaid.
3. Purchase Long-Term Care Coverage
Long-term care insurance helps couples meet expenses for an institutionalized spouse with a chronic health condition or problem that renders them unable to care for themselves. However, this coverage is costly, and you may never use it if you or your spouse don’t go into a nursing home. That said, purchasing long-term care insurance could shrink your assets and help the spouse in the nursing home get Medicaid assistance.
4. Shelter Assets with an Irrevocable Trust
An irrevocable trust – or in this case, a Medicaid trust – should give anyone pause before creating one. Ceding control of a significant portion of your assets should only occur for a few reasons: keeping assets from creditors, reducing taxes or becoming eligible for government assistance. Regarding the topic at hand, wealth and assets assigned to an irrevocable trust will not count toward qualifying for Medicaid. Therefore, irrevocable trusts can help you receive government help for nursing home costs.
However, you should only create an irrevocable trust after considering the pros and cons. You’ll be giving control of most or all of your wealth to a trustee. You will also most likely lose access to the funds in the trust and only receive income from the trust’s principal. Additionally, if you wanted to sell your home and downsize, you would need your trustee to sign off on it.
A Word of Caution for Protecting Your Assets
How much income the community spouse receives differs between states. One way around the limit is that each minor or dependent child living with the community spouse allows a 33% increase to the monthly amount.
Because of the Omnibus Budget Reconciliation Act of 1993, Medicaid can pursue repayment from your estate for nursing home expenses after your death. When you don’t appropriately shelter your assets, it’s possible for seizure. Taking your assets could end up leaving your intended beneficiaries empty-handed.
There are limits to financial gifts for family before you must pay taxes. In 2023, if your gift to any individual family member is worth more than $17,000 in cash or assets, you must file a gift tax return with the IRS. In 2024, that limit will rise to $18,000.
Bottom Line
Planning ahead for the potential of either you or your spouse ending up in a nursing facility is essential for protecting your assets as you age. If it happens, there are ways you can retain your wealth and property by taking action well in advance. From getting long-term care insurance coverage to buying the right annuity, there are ways to put yourself in a better position if this happens to occur.
Tips on Retirement Planning
- A financial advisor may be able to help you find long-term care options. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Retirement and long-term care planning aren’t always easy. For help, check out SmartAsset’s Retirement Tax Calculator which can help you determine the friendliest state to retire in, from a tax perspective.
- It can be confusing trying to figure out how much money you need to have saved at any given time so that you’ll have enough for retirement. You can check out our resource on the average retirement savings by age to learn more and gauge how close you are.
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