With the rising costs of nursing homes and long-term care, it is critical that everybody engaging in estate planning look at how they plan to fund their own care. The reality is that the average cost for care is around $73,000 per year and is on the increase. It doesn't take long, then for nursing home costs to eat away at one's wealth.
Most health insurance plans do not cover nursing home costs, so one would have to purchase a special policy for that purpose. Many people end up turning to Medicaid for assistance, but it is important to remember that Medicaid has strict requirements regarding qualify for support. The rules are designed so that applicants cannot simply give all their money away before going to a nursing home and then ask the government to pay the cost.
Any gift given within five years of the application will work against one in qualifying for support. There are ways, though, to remove assets from one's estate so that nursing home costs cannot touch them. The most important thing is to begin early on, at least five years in advance of the need for nursing home care.
Gifting to children is a good way to remove assets from one's estate. Ideally, the children would then freely set up a special needs trust for the benefit of their parents. Another option is that children can count parents as dependents if they take of enough of the nursing home costs. If a child pays at least half of the medical costs, he or she may deduct a portion of them. Yet another option is that a dynasty trust for the benefit of the child can be created, which would protect assets in the event the child is divorced or sued.
It is important to work with a qualified estate planning attorney through the process of nursing home planning. Doing so will ensure that the most effective means of asset protection are set in motion.
Source: USA Today, "Ask Matt: How to protect assets from nursing home costs," Matt Krantz, September 17, 2012