For many families, the cost of long-term care for a loved one can be one of the most significant financial risks in retirement. Nursing home and assisted living expenses can quickly deplete a lifetime of savings, forcing individuals to sell property or rely on loved ones for support. The good news is that with careful planning, it’s possible to protect assets—such as real estate—while still qualifying for Medicaid coverage when the time comes.
The Three Ways to Pay for Long-Term Care
There are essentially three ways to pay for long-term care in Ohio: Medicare, private pay, and Medicaid.
1. Medicare:
Medicare coverage for long-term care is limited. It pays only for skilled rehabilitation and covers up to 90 days—often much less. Once the patient’s care needs shift from rehabilitation to custodial or long-term care, Medicare coverage ends.
2. Private Pay:
Without advance planning, many families must pay out of pocket. In Ohio, the average cost of a nursing home is $8,000 to $10,000 per month, depending on location and level of care. The average stay in a nursing facility lasts roughly 2½ to 3 years, though it can be shorter or much longer depending on health circumstances. It’s easy to see how quickly savings can be exhausted, particularly for middle-class families who do not have long-term care insurance.
3. Medicaid:
Medicaid is the only public program that pays for long-term nursing home care, but it is means-tested—meaning eligibility depends on your income and assets. In Ohio, an individual applying for Medicaid must have less than $2,000 in countable resources. That threshold includes real estate, cash, bank accounts, investments, and most other liquid assets.
Understanding the Medicaid Spenddown
Before qualifying for Medicaid, individuals must “spend down” their countable assets to meet eligibility limits. Medicaid does not distinguish between separate and joint assets for married couples—all marital assets are counted toward eligibility, regardless of whose name they are in.
For a single individual, eligibility typically requires reducing countable resources to below $2,000. For a married couple, the spouse who remains at home (the “Community Spouse”) may keep a portion of the couple’s joint assets. The Community Spouse may keep the marital residence, one vehicle, and up to a certain amount of liquid assets, up to a maximum of $157,920. Any other assets must be spent down to the $2,000 limit before the spouse entering long-term care qualifies for Medicaid.
Countable resources typically include real estate, bank accounts, investments, cash surrender value of life insurance policies, and vehicles. Noncountable assets may include the principal balance of qualified tax-deferred retirement accounts, personal belongings, household goods, and prepaid funeral plans. For a married couple, noncountable assets can be broader and may include the marital residence, one vehicle, and some cash, as discussed above.
The Five-Year Lookback and Penalty Period
When someone applies for Medicaid, the state reviews all financial transactions made within the five years preceding the application date. This “lookback period” ensures that applicants have not given away or transferred assets for less than fair market value to qualify. If such transfers occurred, Medicaid imposes a penalty period—a length of time during which the applicant will be ineligible for coverage. The penalty is calculated based on the total amount transferred.
Gifting as an Asset Protection Strategy
While gifting can be part of a Medicaid planning strategy, outright gifts—such as deeding property directly to children—carry serious downsides. Once the gift is made, the original owner loses all control and legal rights to the asset. If the recipient experiences divorce, death, or creditor issues, the asset may be lost. Additionally, gifted property does not receive a step-up in tax basis, meaning that if the recipient later sells it, they could face significant capital gains taxes.
The Medicaid Asset Protection Trust (MAPT)
A safer, more strategic option is to transfer assets into a Medicaid Asset Protection Trust (MAPT). This irrevocable trust allows individuals to preserve certain assets while removing them from Medicaid’s countable resources—so long as the transfer occurs at least five years before applying for Medicaid. The trust becomes the legal owner of the assets, but the grantor can still benefit indirectly—for example, by continuing to live in a home owned by the trust.
A MAPT offers several advantages: it can help create a protected “nest egg” to supplement care costs not covered by Medicaid, avoids probate, and may preserve an inheritance for loved ones. Additionally, since assets in the trust are not owned outright by the beneficiaries, they are generally protected from the beneficiaries’ creditors, divorcing spouses, or poor financial decisions.
Who Should Consider a Medicaid Asset Protection Trust?
Generally, we discuss this kind of planning for clients who are still healthy, living independently, and over the age of 60. A MAPT can be an excellent tool for individuals or families who wish to plan ahead before care is needed. Ideal candidates include:
- A homeowner with modest savings who wants to ensure part of their savings is preserved for their family.
- A farmer who is “land rich but cash poor” and wants to protect the farm for future generations.
- A couple where one spouse’s health is declining, and the other wants to ensure they can remain financially secure at home while preserving assets for the family.
By acting early—ideally at least five years before needing long-term care—families can protect their most important assets while ensuring access to essential Medicaid benefits if long-term care becomes necessary.
Tagged In:Elder LawEstate PlanningMedicaid Planning and Applications