Are you worried about the soaring costs of nursing homes in the United States? If you answered yes, you’re not alone. According to the Cost of Care Survey by Genworth, a private room in a nursing home can set you back $9,034 per month (that’s $108,408 per year). While a semi-private room may seem more affordable at $7,908 per month, the costs are still intimidating. Unfortunately, the cost of nursing homes is expected to rise even further. Experts predict that by 2030, these costs will reach an annual average of $123,823 for a semi-private room and $141,444 for a private room. And if that’s not worrisome enough, the financial reality for many Americans falls far short of what is needed for nursing care. The How America Saves 2022 report compiled by Vanguard reveals that the average retirement savings for Americans hovers around a mere $141,542.
With such a large disparity between nursing home costs and retirement savings, it’s essential to explore strategies to protect your assets and prevent a nursing home from seizing your house to cover expenses. In this blog post, we’ll dive into what happens to your assets if you end up in a nursing home, whether a nursing home can take your house, and, most importantly, six effective methods to avoid a nursing home claiming your home.
What happens to your assets if you go into a nursing home?
Entering a nursing home often raises financial concerns, particularly around how your assets might impact your eligibility for Medicaid. Since Medicare only covers short-term stays, many seniors turn to Medicaid for long-term nursing home care—but qualifying isn’t automatic.
Medicaid has strict asset and income limits. To qualify, seniors often need to “spend down” their resources, which must be done carefully and in advance. That’s because Medicaid enforces a five-year “look-back” period, where financial transactions like gifting money or transferring property can jeopardize your eligibility.
During this window, if you’re found to have sold or gifted assets below market value—or moved them into a trust—you may be penalized and delayed or denied coverage. That’s why it’s critical to understand your state’s specific rules and plan ahead.
There are a few exemptions to the look-back period:
- Asset transfers for the benefit of minor children are permitted during the look-back period if the children are under 21 years old, disabled, or legally blind.
- The Sibling Exception permits the transfer of a home to a sibling who is already a part-owner and has resided in the home for at least one year before the nursing home admission.
- The Caregiver Child Exemption permits the transfer of a home to an adult child who served as the primary caregiver for their parent(s) for at least two years before their relocation to a nursing home or assisted living residence.
If you meet the asset and income requirements, but you own a home, you could still qualify for Medicaid. While you’re still living, the state may place a lien on your home if you’re receiving long-term care funded by Medicaid. This doesn’t mean you’ll lose your house while alive, but it does allow the state to recover the cost of your care after your death. This process is known as Medicaid estate recovery.
There are exceptions. If your spouse is still living in the home, they’re typically allowed to remain there without risk of the property being claimed. You may also be able to transfer the home without penalty to a child with a permanent disability. These exemptions can protect your home from recovery, but rules vary by state—so it’s important to consult an elder law attorney familiar with your state’s regulations.
To better understand the complexities of asset transfers, exemptions, and state-specific regulations, we recommend that you consult with an elder care attorney licensed in your state.
Can a nursing home take your house?
No—nursing homes themselves don’t have the authority to take your home as payment. However, if you received long-term care covered by Medicaid, the state may seek reimbursement through the Medicaid Estate Recovery Program after your death. This government-run process is often confused with direct action from nursing homes, but it’s actually part of how Medicaid recoups costs—not a seizure by the care facility itself.
How to Avoid Losing Your House Through Medicaid Estate Recovery: 6 methods
While the hefty price tag of a nursing home can require seniors to relinquish their hard-earned assets, including their cherished homes— there are some strategies you can put in place to safeguard your assets. Six effective methods to avoid the nightmare of losing your home include transferring ownership, creating trusts, purchasing insurance, and engaging in Medicaid planning. We strongly advise consulting with an experienced elder law attorney or financial planner who can provide personalized guidance and help you craft a tailored plan that suits your specific needs. By taking the right steps, you can gain peace of mind and protect the legacy you’ve worked so hard to build.
1. Receive nursing care at home
To avoid Medicaid taking ownership of your home to recoup the costs of nursing home care, you may want to consider in-home nursing care. This option allows you to receive essential medical care and help with daily tasks right in the comfort of your own home. Not only does it extend your independence of living at home for much longer, but at-home nursing also costs less than living in a traditional nursing home.
Typically, home care aides and agencies charge an hourly rate ranging from $18 to $40 an hour, depending on where you live. According to the Cost of Care Survey by Genworth, the median monthly cost of full-time, in-home care for seniors is approximately $5,148, based on an average of 44 hours of care per week. While the overall monthly cost may be lower than a nursing home, at-home nursing care may not be sufficient for some seniors. Personal health aides do not typically provide services overnight, whereas nursing homes provide around-the-clock care. For seniors who need 24/7 assistance, a home health aide may end up costing more than a nursing home.
Paying for in-home nursing care is primarily done out of pocket, with seniors covering the expenses. In certain cases, Medicare Parts A and/or B may provide coverage for medically necessary services for a short period of time, but nonmedical care —like meal preparation, bathing assistance, and housekeeping — typically does not qualify for Medicare coverage.
2. Make a plan to qualify for Medicaid
Strategic planning is key when it comes to securing Medicaid eligibility and protecting your assets. By implementing your strategy in advance, you increase your chances of qualifying for Medicaid to cover your nursing home care expenses. Remember: it’s important to initiate these plans before the five-year look-back period that Medicaid utilizes to determine eligibility, otherwise you may not qualify. Here are a few approaches to consider:
- Spend down assets wisely before the look-back period. Instead of panic-spending during the look-back period, carefully manage how you spend your assets. Decide how you will sell your assets and who you will transfer them to before the look-back period.
- Create a Medicaid Asset Protection Trust (MAPT). Transfer your home and other assets into a Medicaid asset protection trust before the look-back window. This trust allows you and your loved ones the right to your home even after you pass away. By utilizing MAPTs, you can protect your assets from being counted for Medicaid eligibility purposes.
- Transfer assets to a spouse in advance. If you’re married, consider transferring your home and other assets to your spouse, who will not live in the nursing home. By doing so, your spouse will have control over the assets, allowing them to sell the home after you become eligible for Medicaid.
- Purchase annuities. Annuities allow you to convert countable assets into non-countable assets. This can be beneficial for eligibility because Medicaid doesn’t consider your annuity income stream when assessing your asset limit. However, it’s important to note that income from annuities may be subject to Medicaid’s income limit for applicants.
3. Invest in long-term care insurance
Long-term care insurance is a valuable financial tool that can help you pay for nursing home expenses if you experience a chronic medical condition, disability, or disorder such as Alzheimer’s disease later in life. Similar to other types of insurance, you buy a long-term care insurance policy and pay the premiums over time. According to the American Association for Long-Term Care Insurance, 55-year-olds paid roughly $102 per month for a $165,000 long-term care insurance policy.
Policyowners typically become eligible for benefits when they can’t perform at least two of the six “activities of daily living” (ADLs) independently: bathing, caring for incontinence, dressing, eating, toileting, and transferring. Once they reach that stage in life, a claim can be filed to cover long-term care services. Usually, folks have to pay out-of-pocket for long-term care services up to 90 days before their long-term care insurance begins covering the care.
Long-term care insurance can be expensive, so it’s important to purchase it as early as possible. Premiums tend to increase as you age, and waiting too long may result in higher costs or even potential exclusions based on your health. By securing a policy early on, you can lock in more affordable premiums and have peace of mind knowing that you have coverage in place.
4. Consult an elder law attorney
Don’t try to navigate the complexities of Medicaid, asset protection, and nursing home expenses alone. Bring in an elder law attorney who can help you form a long-term care strategy without the headache of going at it on your own. These legal professionals specialize in the unique needs of seniors and can offer expert advice on safeguarding your assets, including your home, from nursing home expenses.
One of the key advantages of working with an elder law attorney is their ability to provide a comprehensive understanding of the legal and financial implications of various strategies. They can assess your specific situation, explain the available options, and tailor a plan that aligns with your individual needs and circumstances.
5. Use a trust
When it comes to protecting your home from nursing home expenses, you may want to consider creating a trust. More specifically, you should consider an irrevocable trust that protects assets from being counted for Medicaid eligibility.
When you transfer ownership of your home to an irrevocable trust, you create a legal entity that holds the property separate from your personal assets. This separation can help shield the home from being claimed by Medicaid during asset recovery to cover nursing home costs. While you no longer technically own the home, the trust allows you to remain in it and establish guidelines for its use.
There are some pros and cons to adding your house as an asset in an irrevocable trust.
The pros:
- Asset protection: Transferring your assets into an irrevocable trust protects your home and other assets from being counted for Medicaid eligibility purposes.
- Medicaid eligibility: By establishing an irrevocable trust, you may become eligible for Medicaid benefits to cover the cost of a nursing home.
- Estate planning benefits: An irrevocable trust allows you to distribute your assets according to your wishes and potentially minimize estate taxes.
The cons:
- Irrevocable nature: You generally cannot regain ownership of your assets once they are in the irrevocable trust, which can be a disadvantage if your needs change in the future.
- Look-back period: If the transfers are made within the Medicaid look-back period, your eligibility for Medicaid benefits may be affected.
- Costs and complexity: Establishing an irrevocable trust can cost legal fees, administrative expenses, and more. In addition, the complexity of trust administration can require ongoing professional assistance.
As you do your research, it’s important to consult with an experienced elder law attorney or financial planner to assess your specific circumstances and determine if a Medicaid Asset Protection Trust is a suitable option for your asset protection and long-term care planning goals. They can provide personalized advice and help you make an informed decision.
6. Selling your life insurance policy
If you have a life insurance policy that you no longer need or can’t afford, selling it through a life settlement can provide a one-time cash payout that can be used to cover nursing home expenses, reducing the risk of losing your home. Life settlement payouts are, on average, more than 4X the cash surrender value of the policy, making them a lucrative liquid asset you may be able to tap into if you qualify.
When you sell your policy in a life settlement, you transfer ownership, premium responsibilities, and your death benefit to a third-party buyer — usually a licensed life settlement provider — in exchange for cash proceeds. There are no limitations on what you can use the proceeds for ,and oftentimes people will use their payout toward long-term care, like nursing home costs.
There are a few key things to keep in mind when considering selling your life insurance policy to pay for nursing home care:
- You may need to pay taxes on part of life settlement proceeds. Whatever amount of premiums you’ve paid into the policy are considered tax-free from your proceeds. The amount up to the cash surrender value is taxed as ordinary income, and any proceeds beyond the cash surrender value amount are taxed as capital gains.
- Your beneficiaries (typically) do not receive a death benefit. Unless you work with the buyer to retain some death benefit for your beneficiaries, they will not receive the death benefit when you pass away.
- You do not have coverage anymore for estate planning purposes. Since you’re no longer the policyowner, your beneficiaries cannot count on the death benefit for life estate planning upon your passing.
Are you interested in finding out how much your policy is worth in a life settlement? Get started with Coventry Direct today to learn more about selling your life insurance policy. The proceeds from a life settlement could help you pay for the nursing home care you need today or in the future.
The soaring costs of nursing homes in the United States pose quite a challenge for many seniors, as their retirement savings often fall far short of what is needed to cover the expenses. While nursing homes do not have the authority to seize assets from their residents, Medicaid can seek to recoup the cost of care from the assets after the individual passes away. However, there are effective methods to prevent a nursing home from taking your house. By planning ahead and exploring strategies such as receiving nursing care at home, making a plan to qualify for Medicaid, investing in long-term care insurance, consulting an elder law attorney, using a trust, or selling a life insurance policy, seniors can safeguard their assets and protect their homes. Start by seeking professional guidance to tailor a plan for your unique circumstances and create a more secure future for you and your loved ones.
