How Can Individuals Protect Their Assets From Assisted Living Costs?

Individuals can protect their assets from assisted living costs by investing in long-term care insurance, buying an annuity, forming a life estate or establishing a gift. Assisted living residents face median annual costs of $54,000, which may deplete their assets and savings if forced to self-pay.

Almost 6 million retirees rely on Medicaid and Medicaid waivers, especially Home- and Community-Based Services, to pay for long-term care. However, those holding assets exceeding Medicaid eligibility criteria must use their own funds for assisted living costs, affecting their savings and assets.

One way to protect savings and assets is to make a financial gift to a loved one to reduce the estate for Medicaid purposes. If you have the benefit of planning for long-term care in advance, you can take other measures to help protect your assets and potentially make you eligible for Medicaid.

Taking out long-term care insurance (LTCI) means seniors don’t use their assets to cover assisted living. In return for paying monthly premiums, these policies pay out when older adults have a chronic illness or require assistance with everyday tasks. Although premiums may eat into savings, it will do so less than if you self-pay for assisted living.

Creating a life estate helps seniors decrease the value of their estate and qualify for Medicaid. Property owners transfer ownership to a remainderman, typically someone they wish to inherit their home, such as a family member, friend or loved one. Seniors retain the right to live and use the property for the rest of their lives, with the remainderman only taking ownership upon their passing.

Placing assets in an irrevocable trust transfers ownership of those assets to the trust account. Any money held by this legal entity becomes the property of the trust rather than part of your estate and is therefore not considered an asset for Medicaid eligibility.

For a more immediate solution, buying a Medicaid-compliant annuity can protect your assets from assisted living costs. As a form of insurance, seniors make a lump-sum payment that they receive back as regular income. The initial investment instantly removes money from the estate.

When contemplating life estates, irrevocable trusts and gifts, always consider Medicaid’s look-back period. Although the actual time frame varies by state, Medicaid typically reviews all financial transactions made within the past five years. This review takes assets a person transfers, gifts or sells within that time into consideration.