My wife and I are older. I have an individual retirement account (IRA) worth about $100,000, and we have set up a trust through our children to protect our assets. If one or both of us have to go into a nursing home, can they receive our IRA? What do we have to do to protect it?
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Long-term care (LTC), which can include stays in nursing homes, is expensive and can quickly deplete savings that you might have earmarked for something else.
How do you prevent that from happening? The specific answer depends on variables you haven’t disclosed. But in my experience, people often think of Medicaid when they talk about “protecting” assets from long-term care costs. So what does that look like? (And if you need more help planning for long-term care costs, consider working with a financial advisor.)
Qualifying for long-term care through Medicaid
Medicaid is often viewed as a “safer” option for long-term care, for the simple reason that it is less expensive and therefore less likely to put a strain on your assets. However, there are strict income and asset limits for Medicaid eligibility. While these limits vary by state, a $100,000 IRA will likely disqualify you from Medicaid coverage.
Now you’re faced with a paradox: The money you want to save through cheap health care is a barrier to getting cheap health care in the first place.
At this point, a probate attorney or well-meaning friend might suggest that you reorganize your assets to exclude them from the claim limits. The idea is to make yourself less wealthy on paper in order to qualify for Medicaid without actually giving away your wealth.
If that sounds difficult, that’s because it often is. For one thing, many states use a five-year lookback period when determining Medicaid eligibility. This means that your efforts will have been in vain if you have made an unusual asset reallocation in the five years prior to your application. (And if you need help determining whether you’re eligible for Medicaid, consider working with a financial advisor.)
3 Ways to Protect Your Assets from Medicaid
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If you’re willing to plan ahead and do your homework, there are a few ways to move your assets so you may be eligible for Medicaid.
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Pensions: Any money you contribute to a “Medicaid-compliant” annuity will not count toward your asset limit and is also exempt from the lookback period. The catch – and it’s a big one – is that the money is completely locked up, except for the regular payments you receive from the pension. And this payment is counted towards the income limit.
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Home equity: In most cases, the equity you have in your primary residence will not count toward the Medicaid asset limit. This allows you to protect your assets by putting them toward your mortgage or even upgrading your home. But the look-back period applies here, too, and in some states the state may take a portion of your home equity to offset the cost of care after your death.
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Trust: You mentioned that a trust has already been set up, but there is a type of trust specifically designed for this situation. When you put your money into a Medicaid Asset Protection Trust (MAPT), it is effectively handed over to someone else, so it is technically no longer yours and will not count toward your Medicaid eligibility. Remember, the surrender must be completed five years before enrolling in Medicaid.
As you may notice, the common problem with these methods is that they drastically limit what you can do with your assets. And by taking away your financial independence, they are to some extent making you poor in reality – not just on paper. (And if you need help implementing any of these strategies, consider working with a financial advisor.)
This may be preferable to the alternatives, but it depends on another variable: Why do you want to protect your assets from long-term care costs, including nursing home costs, in the first place?
Is cheap care worth it?
The options discussed above often make the most sense as estate planning measures. If you don’t expect to use your assets yourself but are concerned about preserving them for your heirs, it may not matter whether they are placed in a trust, an annuity, or your home equity.
But there’s still an elephant in the room. Remember, these asset protection techniques will ultimately provide you with affordable healthcare and long-term care. And that can impact your access to care and its overall quality.
Ask yourself: What do you want to “protect” your money for? Is it worth all the struggle and the risk of mediocre care in old age? This may be the case if you want to leave a significant inheritance or save assets for your spouse. (And if you need more help with estate planning, consider working with a financial advisor.)
Next Steps
A middle ground solution would be the best course of action. Something like long-term care insurance or an aging-in-place strategy may not fully protect your assets from long-term care costs. However, such an option could reduce these costs while providing the care that preserves your quality of life.
Remember that the purpose of saving money is ultimately for your well-being and that of your loved ones – not just to save it for its own sake.
Tips for Finding a Financial Advisor
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Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three vetted financial advisors working in your region, and you can survey your matching advisors for free to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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Consider a few advisors before choosing one. It is important that you find someone you trust to manage your money. As you weigh your options, consider asking an advisor these questions to ensure you are making the right choice.
Graham Miller, CFP® is a SmartAsset financial planning columnist who answers reader questions about personal finance topics. Do you have a question you would like answered? Email [email protected] and your question may be answered in a future column.
Please note that Graham is not a participant in the SmartAdvisor Match platform. For more money insights from Graham, visit the Wiegand Financial blog.
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The post Ask an Advisor: Can a Nursing Home “Take Our IRA”? My wife and I are older. We have a $100,000 IRA and a trust to protect our assets. first appeared on SmartAsset Blog.