Spending time in a residential care facility after retirement is becoming increasingly common nationwide. As of 2018, 2.1% of adults over 65 used nursing home services at least part of the year, while a further 1.6% of this population spent time in a residential care community.
With almost one in every 25 adults over retirement age requiring residential care, it is important to acknowledge that this may be in your future. One of the most valuable ways to plan ahead is by considering how residential facility costs could affect your estate.
The Risks Nursing Homes Pose to Your Estate
Residential care facilities like nursing homes can be crucial to maintaining your health and quality of life as you age. However, these facilities are costly. According to AARP, the average monthly cost of residential facilities ranges from $5295 for assisted living to $11,573 for private nursing homes. That is a significant amount for anyone to cover, especially post-retirement adults.
Many people cannot or choose not to pay for their nursing home out of pocket. Instead, they use Medicaid to help cover the costs. Federal regulations require state Medicaid programs to provide nursing facility care to those in need. The specific requirements vary by state. In California, adults are eligible for the Medi-Cal program if they are over 65 and fall below certain income criteria.
While Medi-Cal allows adults who need care to receive treatment with minimal out-of-pocket expenses, it comes with drawbacks. In particular, the state reserves the right of “estate recovery.” This is the process of claiming funds or assets from a deceased person’s estate to cover the cost of the Medi-Cal services they received while alive.
This can put assets like your home at risk. If you do not protect your house in your estate plan, it could be claimed by Medicaid to cover the costs of your residential care, preventing your beneficiaries from inheriting it.
Using Your Estate Plan to Protect Your Assets From Medicaid
You do not have to accept the loss of your family home as the cost of receiving necessary medical care. There are several strategies you may consider to protect property from being “recovered” by the state after your death, such as:
- Placing property in a trust. One of the most effective ways to protect a home from Medicaid recovery is by placing it in a trust. Property placed in a trust becomes the property of that trust. As such, it is significantly less likely to be reclaimed to cover your costs after you pass. This strategy works best if the home is fully paid off, so no mortgage is involved. Meanwhile, you can continue living in your home until and unless you need residential support.
- Naming your beneficiary as a joint owner. If you have a specific person you want to receive your property, you may name them as a joint owner while you are still alive. Medicaid cannot seize ownership of a home during estate recovery if it is partly owned by someone else. Instead, it will place a lien on the property, which your beneficiary can cover through a mortgage or other assets from your estate. If you are comfortable sharing ownership, this can be an excellent way to pass on the property.
- Giving the property to your beneficiaries while you are alive. If you suspect spending time in a nursing home is unavoidable, you may gift your house to your heirs while you are alive. Once it is in their ownership, it is no longer subject to Medicaid recovery at all. However, the gift will count against your lifetime estate and gift tax limit. It will also remove your legal right to make decisions about the property. This option can be effective, but it is best reserved for when no other options work for your family.
Plan for Residential Facility Care With The Dayton Law Firm P.C.
Residential care is more common than many people realize. It’s also more expensive than ever before. Considering how time in a nursing home may affect your finances when planning your estate is crucial. At The Dayton Law Firm P.C., our attorneys have decades of experience helping clients navigate these concerns. Learn more about how we can help you plan for potential residential facility care by scheduling your consultation today.