How to Protect Assets From Nursing Home Costs

Nursing home costs can take a real bite out of your assets without proper planning. Although protecting your assets can be complicated, it’s a necessary step. Let’s break down what happens when you go into a nursing home and common ways to protect your assets from nursing home costs. A financial advisor could help you create a financial plan for your healthcare needs and goals.

What Happens If You Go Into a Nursing Home?

Before you can make a plan to protect your assets, it’s important to understand the financial mechanics that unfold when you go into a nursing home.

The costs of staying in a nursing home vary based on the state. But here’s a look at the average costs:

Median annual cost of a semi-private room: $89,297
Median monthly cost of a semi-private room: $7,441
Median annual cost of a private room: $100,375
Median monthly cost of a private room: $8,365

It’s easy to see how these costs could spiral out of control quickly. The good news is that Medicare may help to cover some of the costs for low-income individuals. But even with the help of government programs, you could be facing significant costs.

If you are worried about the strain of nursing home costs on your nest egg, then protecting your assets should be a priority. Here are five common ways to protect assets from nursing home costs:

Buy long-term care coverage. Long-term care insurance is specifically designed to help you cover the costs of nursing home care. The coverage can help you pay for the gap between what Medicare covers and what it costs without dipping into your nest egg.

Although the annual costs of a long-term care insurance policy can be steep, it will serve to protect your assets in the event of a nursing home stay. If you don’t end up using the insurance policy, you won’t receive any funds back.

Buy a Medicaid-compliant annuity. A Medicaid-compliant annuity is designed to help you receive monthly payments. However, the annuity will not count towards your assets. That’s a big deal when it comes to government programs covering your nursing home costs.

Typically, a lower net worth means more assistance to cover your home costs. But you’ll still get to hang on to the monthly payment from your annuity.

Create an irrevocable trust. The irrevocable trust transfers the control of your assets from you to a beneficiary. The key word of this asset protection option is irrevocable. Once you create this trust, you will no longer have any control over the assets. So, the beneficiary will be in charge.

But depending on your situation, you might be comfortable with ceding control of the assets. When you transfer assets into this trust, it will lower your net worth. And with that, you may qualify for more government help in picking up the costs of your nursing home stay.

Draft a life estate. A life estate is an option to shelter your real estate assets. This vehicle will give your spouse ownership over the assets in the estate. Essentially, this stops the government from taking the property to cover nursing home costs.

If one spouse dies in the nursing home, the other can inherit the property. But it’s critical to do this ahead of time. If a spouse passes away within five years of creating a life estate, the surviving spouse would be on the hook for a Medicaid fine.

Give financial gifts. Gifting financial assets to your family to lower your net worth could help you qualify for more Medicare assistance. But there’s a limit to how much you can give without encountering the gift tax.

As of 2022, you cannot gift more than $16,000 in assets or cash to a family member without filing a gift tax return with the IRS. However, an individual’s combined lifetime exemption from federal gift or estate taxes is $12.06 million.

Bottom Line

Nursing home costs will add up quickly. Each strategy is an option to protect assets from nursing home costs. But it’s important to plan ahead when considering these expenses. A financial advisor can help you map out how to protect assets from nursing home costs for your specific situation.

Estate Planning Tips

A financial advisor can help you protect your assets. 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.
If you have a sizable estate, estate taxes could be hefty. This tax guide could help you plan for 2022.