Mom Needs a Nursing Home. Should I Spend Down Her Assets So She Qualifies for Medicaid?

Question: My mom suddenly needs to be in a nursing home. Should I spend down her assets so she qualifies for Medicaid?

Answer: If you’re in a situation where your mother needs nursing home care, you may be thinking your only option is to spend down her assets so she can qualify for Medicaid. Unlike Medicare, Medicaid does pay for long-term care. But whittling an older parent’s money down to their last dime may not be the only solution.

Of the various retirement costs you may know to plan for, healthcare is perhaps the trickiest. Fidelity estimates that the average 65-year-old retiring in 2024 could expect to incur $165,000 in medical expenses throughout their later years. And that estimate doesn't even account for long-term care.

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The Administration for Community Living reports that someone turning 65 today has an almost 70% chance of needing long-term care services in their lifetime. And not surprisingly, women tend to need care for a longer period of time than men (3.7 years on average, compared to 2.2 years, respectively).

The problem, though, is that long-term care needs can arise suddenly. And if you think Medicare will pay for it, you’re sorely mistaken.

Medicare will only cover the cost of care that’s medical in nature. Long-term care is generally custodial, which is a big distinction.

Needing help with everyday activities like dressing and bathing is a common byproduct of aging. But unless it’s associated with a specific illness, injury, or surgical procedure, Medicare is unlikely to pick up the tab.

Ways to protect assets and still qualify for Medicaid

Genworth's most recent Cost of Care survey puts the average annual nursing home bill at $111,325 for a shared room and $127,750 for a private room. These are costs many retirees can’t afford.

The middle-class trap

Meanwhile, retirees who are comfortable but not wealthy often fall into a trap. They have too many assets to qualify for Medicaid, but not enough money to pay for nursing home care without eventually going completely broke.

As Evan Farr, a Certified Elder Law Attorney, explains, there’s a general $2,000 limit on spendable assets to qualify for Medicaid. However, he says, "experienced elder law attorneys help people protect assets every day" while still qualifying for Medicaid.

In fact, Farr says, married couples can often protect 100% of their assets in these situations. And there are numerous legal and ethical asset protection strategies that knowledgeable attorneys can use.

The singles trap

Now, Farr does acknowledge that the rules are different and, unfortunately, less favorable for single people.

“But we still have strategies," he insists, that can commonly protect 40% to 70% of a single person’s assets.

"Some money will have to be spent down to pay for care, but not all,” he explains. So if you’re in a situation where you have a parent who needs nursing home care, don’t just go on a spending spree. Instead, consult a professional.

Michael Murray, AIF, CPFA, and president/financial planner at Peabody Wealth Advisors, agrees.

"As a single person, the best strategy would be to talk to an elder care attorney about setting up an irrevocable trust," he says, or discussing other strategies to protect assets.

To be clear, though, protecting assets isn’t simply a matter of preserving inheritances. Rather, as Farr explains, it's an important thing to do because that money can be used to provide supplemental care for a parent entering a nursing home. This could include paying for denture replacements, hearing aids, cell phone bills, and other services not typically covered by traditional nursing home fees.

Extra funds for extra eyes

Plus, as Farr says, “In some cases, if the parent would benefit, the money that's protected can be used to hire a private sitter to be with the parent in the nursing home so they have someone with them a few hours a day, whether to be a companion or to help with care.”

It’s not a secret that nursing homes these days are sorely understaffed. Having extra funds to pay for a private caregiver could lead to a far more positive experience and level of care.

How to spend down assets

Murray also explains that there’s a misconception as to what spending down assets to qualify for Medicaid might look like.

“You can’t just gift your money to a child,” he insists. However, he says, with careful planning, assets can be spent in a meaningful and helpful way, such as pre-paying a funeral and making home improvements.

Farr also insists that there's a misconception about protecting assets in the context of Medicaid.

"'Hide' is a dirty four-letter word in our industry," he says. "We don't hide assets. We legally shelter assets. On the ethical and moral side, it's no different from income tax planning, where you're trying to get back the biggest refund."

Long-term planning is still a must

It may be comforting to know that there are ways to get nursing home coverage through Medicaid without spending down every last penny you or a loved one worked hard to save. However, Murray says it’s essential to acknowledge that the strategies described above are “not a way for rich people to shelter their assets."

He also insists, as does Farr, that strategic Medicaid planning is not a substitute for long-term care planning or long-term care insurance. In fact, Murray recommends prioritizing long-term care insurance and not waiting too long, since the underwriting requirements for these policies can be quite strict.

Farr, meanwhile, explains that while Medicaid commonly covers the cost of nursing home care, assisted living is a different story.

"A huge percentage of people wind up needing the assisted living level of care sometimes for five to 10 years before they ever need nursing home care," he explains. "People with dementia often have a slow decline, and that lower level of care won't be paid for Medicaid."

What about Medicaid cuts?

A recent Kaiser Family Foundation poll found that 83% of people have favorable views of Medicaid. But with roughly $1 trillion in Medicaid cuts in the so-called One Big Beautiful Bill (OBBB), which was signed into law on July 4th, it may have you worried about using Medicaid as a fallback option later in life.

In the context of long-term care, there may be some good news.

"Nursing homes, I think, are going to avoid the worst of these cuts," says Murray. “It's under 65 and able-bodied people who they're focusing on.”

That said, Murray warns that immigration crackdowns are going to hurt nursing homes.

"If they can't get help, it's going to raise their costs to hire skilled nursing care," he insists.

Murray also warns that the proposed cuts could impact nursing home care over time.

“If they cut as much as they're talking about, it's going to trickle down to long-term care Medicaid eventually,” he explains. “It could create other issues down the road because the states don't have these pools of money to make up for these kinds of cuts."

Farr agrees.

"They're targeting the low-income Medicaid. That's what they perceive people to be abusing," he says. “But we don't know how it's going to trickle down."

Read More

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