How to Protect Your Estate from Nursing Home Costs

Planning for your financial future is about more than saving for retirement. For many, ensuring your estate can keep up with potential nursing home costs is a significant concern. Without proper planning, the expenses associated with long-term care can quickly deplete your hard-earned assets.

In this article, the Michigan estate planning lawyers at Legacy Counsel will walk you through safeguarding your estate from nursing home costs while protecting your assets.

Why Are Nursing Home Costs a Concern?

Nursing home care is one of the most significant expenses seniors face. According to recent estimates, the average cost of a nursing home stay can exceed $100,000 per year. For many, this can rapidly deplete retirement savings and eventually require selling assets such as a family home or sentimental heirlooms.

Without a plan, paying for long-term care can significantly reduce the inheritance you intend to leave behind. Fortunately, there are steps you can take to protect your estate from being depleted by these expenses.

Medicaid & Long-Term Care

Medicaid is a government program that can cover nursing home costs for those who qualify. However, eligibility for Medicaid comes with strict asset and income limits. If your assets exceed these limits, you may need to “spend down” to qualify, potentially leaving little for your heirs.

Estate planning strategies, such as establishing trusts, can help you qualify for Medicaid without sacrificing your entire estate. Understanding how these strategies work and how they can benefit you is crucial.

Consider a Medicaid Asset Protection Trust

One of the most effective ways to shield your assets from nursing home costs is by creating a Medicaid Asset Protection Trust (MAPT). This allows you to transfer assets into a legal entity that is separate from you, meaning that when Medicaid assesses your eligibility, those assets won’t count against you. 

How Does a MAPT Work?

When you create a MAPT, you transfer ownership of certain assets—such as your home or savings—into the trust. Although you no longer own these assets, you can still benefit from them while alive, such as by living in your home or earning income from the trust.

Since Medicaid doesn’t count trust assets when determining eligibility, you can preserve your heirs’ inheritance while qualifying for government assistance with nursing home care.

The Five-Year Look-Back Period

It’s important to understand that Medicaid has a “five-year look-back” rule. This means that any transfers of assets made within five years before applying for Medicaid can result in a penalty period where you are ineligible for benefits.

To avoid this, it’s essential to start planning early. By working with an estate planning attorney, you can set up your trust and transfer your assets well before nursing home care becomes necessary, ensuring you won’t be penalized when you need Medicaid.

Long-Term Care Insurance is a Safeguard

Another option for protecting your estate is investing in long-term care insurance. While this insurance can be costly, it helps cover nursing home expenses, reducing the need to rely solely on Medicaid.

Long-term care insurance can act as a buffer, allowing you to preserve more of your estate for your beneficiaries. This option is particularly beneficial if you anticipate needing care in the future but do not want to rely entirely on Medicaid.

Other Ways to Protect Your Estate

In addition to MAPTs and long-term care insurance, there are several other strategies to consider:

“Solely for the Benefit” of Spouse Trust

A “Solely for the Benefit” spousal trust is an irrevocable trust used in Medicaid planning to protect assets for the community spouse (the spouse not seeking Medicaid) while enabling the other spouse to qualify for Medicaid coverage for long-term care. Assets placed in this trust are not counted as available resources for Medicaid eligibility, as the trust is set up to benefit only the community spouse during their lifetime.

The community spouse can receive income and distributions as needed, which supports their financial security without affecting the applicant spouse’s Medicaid eligibility. After the community spouse’s death, any remaining assets may pass to designated beneficiaries. This type of trust requires careful drafting to comply with Michigan Medicaid rules, helping to ensure assets are preserved for the community spouse while meeting Medicaid’s strict asset limits.

Transfer Ownership of Your Home

For many, the family home is the most valuable asset. If the value of your home exceeds the limit set by Medicaid, transferring your home ownership to a trusted family member can remove it from your estate and help you qualify for Medicaid. However, this must be done carefully to avoid tax implications or conflicts within your family.

Spousal Allowance Refusal

If one spouse needs nursing home care, the healthy spouse can claim a “community spouse resource allowance” to avoid becoming impoverished. This amount won’t be counted in determining Medicaid eligibility for the applicant spouse, allowing you to preserve wealth within your family.

Annuities

Annuities can be used to convert assets into income, which can help you meet Medicaid’s eligibility requirements. Properly structured annuities allow you to transfer assets into an income stream, keeping you within Medicaid’s asset limits while preserving wealth for your heirs.

Start Planning Today & Protect Your Legacy

Planning for nursing home care is a crucial part of estate planning. The earlier you begin, the more options you have to ensure that you can cover nursing home costs and pass on assets to your loved ones.

At Legacy Counsel Trust & Estate Law Office, we understand the importance of preserving your estate for future generations. Our experienced attorneys can help you create a comprehensive plan to shield your assets from long-term care expenses.

Let Legacy Counsel Secure Your Future

Our team is ready to assist you in creating a personalized strategy that ensures your estate remains intact, regardless of the future. Contact us today to schedule a 45-minute Estate Planning Phone Consult and learn how we can help you protect your legacy from nursing home costs.