The number of individuals that will require long-term medical care in a nursing home facility is shocking and will continue to increase exponentially over the next several decades. Therefore, we need to come to terms with the fact that many of us will end up requiring long-term care in a nursing home facility.
In addition to the increasing statistic that a large majority of the aging population will end up in a nursing home facility, is the fact that many individuals will end up spending all of their assets and life savings on their nursing home care, and then require Medicaid assistance during their final days. In actuality, the average nursing home cost can range from $5,000 to $7,000 per month. This equals an annual cost of $60,000 to $84,000 per year. In addition, the average stay in a nursing home is roughly 3.5 years. Therefore, it is not out of the realm of possibility that you could end up spending between $210,000 and $294,000 on your nursing home care during your final years. Therefore, it is easy to see that those with only a few hundred thousand dollars in assets could end up spending everything that they own on their nursing home care during their final years.
However, as I indicated above, Medicaid is a federal and state program that is available to help those who require skilled nursing home care and are of limited financial means. In order to qualify for Medicaid you must require skilled medical care and be of limited financial needs. Medicaid allows you to own a home, a vehicle, and a prepaid funeral. However, if you own any other assets, Medicaid will require you to spend those assets on your own care until you have no more than $2,000 worth of other assets before you will qualify for Medicaid assistance.
In addition, Medicaid has estate recovery rights. Now, these rights permit Medicaid, or in Tennessee referred to as TennCare Bureau, to force the estate to sell your home so that your estate can be reimbursed for all the Medicaid benefits that you received during your lifetime prior to your death. For example, lets say that you have $50,000 worth of assets to your name in addition to your home, car, and prepaid funeral. TennCare will force you to spend $48,000 on your care until you qualify for Medicaid assistance. Under most scenarios, this would be spent before you reach the end of your first year in the nursing home facility. Now, let’s further say that you lived in the nursing home for the next 3 years on Medicaid assistance. Well, in this example, TennCare would file a claim with your estate after you die and force your home to be sold so that TennCare could be reimbursed for all the benefits that it paid to the nursing home on your behalf during that three year period.
Therefore, your home actually can be subject to a forced sale after you die to reimburse Medicaid. However, there are certain estate planning techniques that can be used in order to preserve your assets from having to spend them while you are in a nursing home. For instance, there is an estate planning technique that is most commonly referred to as the Irrevocable Medicaid Trust. When you establish this trust, and move all of your assets into the name of this trust, you will be able to protect these assets from having to spend them on your nursing home care should you be required to go into the nursing home in the future.
Now, you may be asking yourself, how is this possible? Well, the Irrevocable Medicaid Trust puts a restriction on you that enables you to protect these assets from future nursing home expenses. For instance, the trust is irrevocable and you will not be able to remove any of the assets out of the trust and put them back into your own name and still maintain your Medicaid eligibility. However, you are allowed to make a distribution from the trust directly to one of your adult children, and then the adult child can immediately return those assets back to you without any Medicaid eligibility issues.
However, before you consider setting up an irrevocable Medicaid trust in order to protect your assets, you should speak with a knowledgable and experienced estate planning attorney. There are specific rules and requirements with these type of trusts, and you need to be careful so that you continue to preserve your Medicaid eligibility if you engage in this type of planning. One of the most important rules is that you must set up this type of trust and transfer all of your assets into the name of the trust at least five years before going into the nursing home in order to prevent yourself from having to spend your assets on your nursing home care.