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How to protect your assets from nursing home costs- a few financial tips and tricks.

Knowing how to protect your assets from nursing home costs is crucial if you wish to pass on your hard-earned wealth to your loved ones. Long-term care can consume all your valuable savings if you don’t plan your finances properly and well ahead of time.

Medical expenses, including long-term care, can even cause bankruptcy in the worst-case scenario.

Many people spend their lives thinking they’ll never need eldercare. When senior care becomes a necessity, they are caught off guard and end up spending more – or losing everything- due to lack of planning.

Protecting your assets from nursing home costs.

Fortunately, there are numerous ways to ensure that you save your assets from nursing home costs. Some of the most useful strategies are:

Settle debts and pending expenses with your liquid assets.

One way to protect your at-risk assets is to get help from Medicaid to pay for nursing care. But Medicaid has eligibility criteria for recipients. A common reason for ineligibility is that your assets and savings are too valuable.

Before applying for Medicaid, it is a good idea to spend your excess savings to settle any debts and clear pending expenses like credit card bills, prepayments of the real estate tax, or even advance funeral costs. Moreover, your spouse can reduce demand over the assets that Medicaid spousal impoverishment rules allow him or her to keep.

It is important to understand that clearing debts and pending expenses won’t reduce your wealth overall- and using Medicaid may actually help preserve it. 

Gift your money away to your loved ones.

If you are debt-free and plenty of savings, one way to protect it from nursing home costs is to gift it to your loved ones.

In the case of Medicaid, anything you gift five years prior to entering long-term care will be safe, and they won’t seize it. Some examples of the assets that you can gift are funds, household items, property, and retirement accounts.

Buy assets that Medicaid doesn’t count.

While planning your finances, it is essential to know which assets Medicaid counts and which ones they don’t. Some examples of non-countable assets are home, household furnishings, funeral and burial funds, cars, and personal effects like clothing and jewelry.

Once you know the categories of the assets, Medicaid allows you to spend the countable assets on non-countable ones. For instance, you can spend your savings on improving or repairing your home, buying a bigger house, new furniture, a new car, or personal effects. So in this way, you will protect your assets in the form of non-countable assets.

One particularly useful thing to do is to get ‘life estate’ for your home. This allows you to live in your house for the rest of your life and to transfer it to your loved one after death. A life estate can help avoid the seizure of your house by the state.

Apply for annuity against your assets.

Transferring your assets into an annuity is another viable way to protect them. In exchange for the agreed payment, you can enter an annuity contract with insurance companies to start receiving a regular series of payments that are made over a specified time period.

Medicaid has different takes on annuity in different states. In some states, their eligibility criteria don’t count annuities, but in some states, they do. If your state doesn’t count annuity, it can certainly protect your assets from nursing home costs. Even if they do, an annuity can help pay for nursing home costs.

Convert your excess assets into income.

This strategy is a combination of the previous two points. Annuities are a useful way to convert countable assets into income. You can also generate income by renting a property.

Creating income sources from your countable assets can help protect them by balancing out the expenses. And like an annuity, the income you generate from the countable asset might not have any effect in terms of eligibility for Medicaid.

Use a trust to protect your money.

There are trusts that can help protect your assets from nursing home costs. Two such trusts are:

  • An irrevocable trust.

If you place your assets in an irrevocable trust, you don’t legally own them anymore. You can still use your assets and can plan to transfer those assets to your spouse or loved ones after your death.

The good thing about an irrevocable trust is that the interest and dividends which you receive are exempt from nursing home costs.

  • A pour-over trust.

This type of trust involves testamentary trust that takes care of the welfare of the surviving spouse. The testamentary trust protects your assets from nursing home costs and provides financial security to you and your spouse, regardless of who passes away first.

Get asset protection using insurance.

You can protect your assets with either long-term care insurance or life insurance. There are many variations of these insurances available. So, it is best to study the details before buying one.

Long-term care insurance is specifically designed for dealing with nursing home expenses. You can get a certain amount of reimbursements depending on the specifics of your insurance. The ideal time to get this insurance is in your middle age.

By knowing how to protect your assets from nursing home costs with these seven strategies, you can rest assured that your assets and savings will pass on to your children and grandchildren.