Many families feel a lot of stress when they think about the future. Getting older brings many changes, and one of the biggest worries is how to pay for a nursing home. Right now, costs for these facilities are going up every year. Many seniors find that they cannot afford the care they need on their own. It is a tough spot to be in.
If you plan ahead, your parents might be able to use Medicaid to pay for their care. This allows them to get the help they need while still keeping some of the things they worked hard for. The U.S. population is getting older, which means more people will need these services in the next few years. Since prices keep rising, it is smart to look at your choices now.
Nursing homes are very expensive. Many people worry that they will have to spend every penny of their savings just to stay in a room. Private health insurance usually does not pay for long term stays. Some people buy special insurance for this, but those plans are also pricey and might not cover everything. This makes Medicaid the main way people pay for care. To get this help, you usually have to show you do not have much money. However, if you start early, you can protect what your parents own.
The High Chance of Needing Help
It is very likely that a senior will need some kind of help later in life. About 70 percent of people who are 65 today will eventually need long-term care. That is a huge number. Right now, about 1.3 million seniors live in nursing homes.
- Around 40 percent of 65-year-olds will spend time in a facility.
- Women tend to need this care more often than men.
- Younger people under 65 are using these services more, rising from 10.6 percent in 2000 to 16.2 percent in 2017.
Medicaid has become the top way to pay for this. In 2020, about 6 million people used Medicaid for long term support. About one in five of those people stayed in a nursing facility. After age 65, more than a quarter of adults stay in a nursing home for at least 90 days. Medicaid is often the only way to pay for these long stays because it covers 100 percent of the costs once you qualify.
Understanding the Costs and Timing
A stay in a nursing home is not always for the rest of a person’s life. About 15 to 20 percent of people go there for a short time to get better after an injury or surgery. On average, a resident stays for about one year and four months. Over half of the people stay for at least 100 days. About 15 percent of seniors stay for more than two years.
The price for this care is high. In some states, it costs $250 to $300 every single day. If your parent stays for the average time of 485 days, the bill could be more than $150,000. Think about that for a second. For most families, paying this much for many years is just not possible without help.
Ways to Qualify for Help Without Losing Everything
If you decide that Medicaid is the best way to pay for care, you have to look at the rules. The program has limits on how much money and property a person can have. Most of the time, a person can only have $2,000 in their name. This is hard because the average net worth for people between 65 and 74 is nearly $1.8 million. There is a massive gap there.
Many people use strategies to turn things that count into things that do not count. You have to be careful, though. The state looks back at the last five years of a person’s finances. If they gave away money or property during those five years, they might get a penalty.
Moving Money Early to Stay Safe
One way to help your family is to give gifts early. If your parents give money to loved ones while they are still healthy, it helps secure their finances. No one knows what will happen tomorrow. By looking ahead, parents can make sure their hard earned money stays with their kids or grandkids instead of going to a facility. This works best when it is done well before a nursing home is needed. It is a gift of security.
Using Life Estates for the Family Home
A life estate is a tool where a parent names themselves as a life tenant and a child as a remainderman. This means the parent has the right to live in the house until they pass away. It protects the home from being taken by the state to pay for care. It also helps avoid penalties if the home was moved into this setup more than five years before care starts. This is a common way to keep a house in the family for the next generation. It keeps the roof over their head while securing the future.
How Annuities Can Help
Some states let people use annuities to stay eligible for Medicaid. This involves moving cash into a special account that pays out a little bit of money every month. This turns a big pile of cash into a stream of income. It can keep a person from having to spend down all their liquid assets. You have to check local rules because every state handles this differently. Also, these payouts might change how other government aid works. It is a specific tool for a specific problem.
Protecting a Spouse at Home
When one person moves into a nursing home, the spouse who stays home needs to be okay. They shouldn’t have to lose everything just because their partner is sick. There is a law called the Federal Spousal Impoverishment Act. This law lets the spouse at home keep a certain amount of income and assets.
- You can often move a portion of the monthly income to the spouse at home.
- This makes sure they have enough to live on.
- You can even increase this amount if there are other people, like kids or disabled adults, living in the house.
Setting Up Irrevocable Trusts
An irrevocable trust is one of the best ways to keep money safe. When money is put into this type of trust, the main amount of money is not counted by the nursing home. The interest or dividends can also be kept out of reach. Because the parents no longer technically own the money in the trust, it is shielded from being spent on care costs. It creates a legal wall around the family’s wealth.
Using Pour Over and Testamentary Trusts
A pour over trust helps keep money safe while still letting people get to the funds they need. To make this work well, you might need to change a will to include a testamentary trust. This type of trust provides for a spouse after a partner passes away. It keeps the shared wealth safe even if one person needs expensive care first. It is all about layers of protection.
Lending Money Through Promissory Notes
A promissory note is a legal loan. A parent can lend money to a family member, and that person pays it back over time with interest. This changes a large amount of cash into a monthly payment. Not every state allows this for Medicaid planning, so you have to check the rules where you live. The loan must have a fair interest rate and a clear plan for repayment. It relies on a family member who is willing and able to pay the money back.
Other Ways to Spend Down Assets
Sometimes the best thing to do is spend money on things your parents actually need. This is a way to lower their asset count while helping their life right now.
- Pay off existing debts.
- Make necessary home repairs.
- Purchase a new car.
- Prepay funeral expenses.
These are all ways to use money for the family’s benefit instead of just handing it over to a nursing home. It provides an instant benefit.
Getting Help From a Professional
Every state has different laws about Medicaid and nursing homes. There is no single plan that works for everyone. Because the rules are so tricky, going through this alone can lead to mistakes and penalties. It is complicated. Talking to an expert can help you make a plan that fits your family and follows the law.
If you are worried about your parents’ future, you do not have to figure it out by yourself. Salines-Mondello can help you look at your options and find the best way to protect what your family has built. Give us a call at (910) 777-5734 to start your plan. Our trusted estate lawyers can help you make sure your parents get the care they need without losing their life savings.