Asset Protection/Sheltering Assets from Nursing Homes

A typical nursing home costs about $120,000 per year. For all but the very wealthy, this means that a nursing-home stay can mean financial devastation. A cornerstone of our firm’s practice involves protection of assets from these costs. This are is extremely complex and technical, and the following is a very brief introduction to two commonly-used techniques.

Medicaid Trust
In order to protect assets if you are healthy now, but are concerned about going into a nursing home in the future, we use a specialized type of trust that is known as a Medicaid Trust. The Medicaid Trust acts as a protective shield over the assets. That is, after a mandatory five-year waiting period, these assets are not accessible to a nursing home, and are protected for the family. Whatever non-IRA assets you wish to shelter are placed into the trust. You are entitled to receive all income or dividends generated by those assets, such as interest/dividends and rental income. You cannot directly receive principal, however, because, if you could, it would be subject to the nursing home. Further, acting as trustee of your trust, you are allowed to sell your home, if you like, and you can also continue to buy and sell investments like stock and mutual funds. CDs can also be put into the trust, and can be rolled over, or switched to different banks as usual.

People use the Medicaid Trust in different ways. Some clients use the trust to protect their real estate, such as their primary house and/or a summer house on the lake or winter house in Florida. Other people use the trust to protect some or all of their financial assets, in addition to the real estate.

Testamentary Trust
It is possible to create a trust through your will. That is, your will can say that assets are to be held in trust for the benefit of your spouse, children, charities, or just about anyone else. Such a trust is known as a Testamentary Trust. Federal and state Medicaid law say that a properly structured Testamentary Trust is not counted towards nursing-home costs. In other words, if the beneficiary of a Testamentary Trust goes into the nursing home and applies for Medicaid benefits, the existence or size of the trust is not taken into account. This trust is not subject to the five-year lookback period.

Imagine that your spouse is in the nursing home and is on Medicaid. Naturally, you might not want to have a will or trust which leaves the assets to him or her. That is, if you die first, your spouse will inherit everything, and will have to spend down the assets and then come off of Medicaid. Logic tells you to set up a will or trust disinheriting the spouse, and for obvious reasons, most people are loathe to do this. The solution to this dilemma is a Testamentary Trust. The trust funds can be used to supplement your spouse’s needs, but not to take the place of Medicaid benefits. Therefore, your spouse can have all the benefits of Medicaid coverage, but can still have a fund to provide a better quality of life. On the death of the nursing home spouse, the funds remaining in the Testamentary Trust would go to the children.

Our firm believes that no one should lose his or her home or lifetime of savings to a prolonged nursing home stay and we have helped thousands of people achieve this goal over the years.