When you hear the word “nursing home,” what image immediately comes to mind? For me, I imagine the nursing home in Cloud Atlas from which the character Timothy Cavendish must escape. In the book, Timothy Cavendish is tricked into signing himself into a nursing home called Aurora House from which he cannot leave. The title of the chapter, The Ghastly Ordeal of Timothy Cavendish, says it all.
While most nursing homes are not so horrible, the story does serve as a reminder that you do not want to end up in a situation, not of your own making. The elderly often are sent to a nursing home after they are unable to take care of themselves, and many spend their final days in a nursing home because they were unable to afford long-term home care. It’s never too early to start thinking about where you will end up as you get older. Peck Ritchey, LLC, suggests discussing nursing home concerns while estate planning so those family members are not struggling to pay for nursing home expenses.
One way to pay for a nursing home is through Medicaid, a federal-funded and state-run joint program to assist both low-income families and individuals with long-term medical and custodial care costs. Before you can qualify for Medicaid, you may have to “spend down” your assets, according to lawyer Bonnie Kraham. Kraham explains that you cannot make gifts to children or other people in the five years before applying for Medicaid without a “penalty period.” This penalty period means you would have to pay for your long-term care out-of-pocket for a specific amount of time-based on the size of the gift.
Kraham lists a number of ways to legally spend down your assets so that you can apply for Medicaid, including paying off a mortgage or home equity loan, a car loan, credit card bills, medical bills and any taxes you owe and making repairs and renovations to your house. It takes some time and planning to spend down your assets without paying the penalty fee.
While the law does protect the spouse of the person who needs a nursing home, the spouse who first needs the nursing home or an unmarried person needs to plan ahead. Kraham suggests having long-term care insurance to cover long-term care costs. If you do not have or cannot afford long-term care insurance, Kraham advises creating a Medicaid asset protection trust (MAPT), which protects assets from nursing-home costs.
According to the Ettinger Law Firm, MAPT is known as an “income only” trust, meaning that the MAPT “names someone other than you or your spouse as trustee and limits you to the income.” MAPT has a five-year look-back period, meaning all the assets in the trust are protected if you need nursing home care after five years. If you need care before five years, you will only pay the remaining time. For example, if you need nursing home care after three years, then you would only have to pay for two years that are left.