Date: Mar 06TH, 2024

Protecting Your Estate from Long-Term Care Costs

Medical technology and other advancements in healthcare have left many of us living longer than ever, which is good news. The not-so-good news is that many Americans will need long-term care late in life due to illness, disability, or simply old age. Financially, this is a daunting prospect, as long-term care is exorbitantly expensive. (The average annual cost for a private room in a nursing home is about $108,000, and the average cost for a shared room is $94,980.) Soaring costs are leaving many Americans who were confident they would have an estate to pass on with diminished assets. 

Many people mistakenly believe that health insurance or Medicare will cover long-term care costs. While these vehicles may cover short stays for recuperation in a licensed facility, they will generally not cover long-term care. Individuals without assets may be covered by Medicaid, but this is available only to those who have “spent down” their assets to a bare minimum. 

There are, however, several ways that you can protect your assets from nursing home costs and leave behind more of your estate to your loved ones. 

Consider Long-Term Care Insurance

Just as insurance protects you from financial liability for your business and your personal property, it can protect your estate from the costs of long-term care. Unlike traditional health insurance, long-term care insurance will reimburse carers for long-term services and support, including personal and custodial care in a variety of settings such as your home, a community organization, or another facility. Long-term care insurance policies reimburse policyholders a daily amount for services to assist them with activities of daily life. Policyholders can choose from a range of care options and benefits that allow them to get the services they need, where and when they require them. 

Transfer Assets to an Irrevocable Trust

The creation of an irrevocable trust transfers ownership of assets to a trust account, which is then managed by a designated trustee. Once this irrevocable trust is in place, the money is no longer considered part of your estate but instead is owned by the trust. This reduces the value of your estate and may allow you to apply for Medicaid for long-term care. It’s important to note that Medicaid eligibility qualification includes a five-year “look back” at actions taken by your estate, so it’s important to create the trust long before you think you may require care. 

Medicaid Compliant Annuities

Purchasing a Medicaid Compliant Annuity is essentially a way to “spend down” financial assets without violating the look-back rules. Annuities provide applicants with an option to convert countable (non-exempt) assets into non-countable (exempt) assets. When assets are turned into an income stream, Medicaid no longer counts the assets towards the asset limit. For Medicaid applicants, income from an annuity is counted towards Medicaid’s income limit.

Consider Gifting Assets to Loved Ones

If you believe that you may ultimately require care but don’t wish to leave your loved ones without the benefit of your estate, gifting cash assets now is an option to consider. Once again, however, you need to be sure you’re doing the gifting outside Medicaid’s five-year lookback period. 

Consider a Combination of Asset Protection Strategies

Finding the right solutions for protecting your estate is likely to be a complex process that will have many moving parts. For this reason, it’s important to consult with a financial services advisor who can lay out the pros and cons of each approach. 

Learn how Arizona-based Prime Wealth Advisors’ full-service retirement planning, tax, estate, and wealth management can help you ensure you maximize your financial position. Call 623.77.PRIME or visit our website for more information.