A nursing home cannot unilaterally take your assets or property, even if you are staying there. Nursing homes have the same rights and limitations as any other business. If you sign a contract and don’t pay, then a nursing home can theoretically sue and collect assets for breach of contract. Even then, however, it would be the court taking and redistributing your assets. A nursing home cannot access your property or accounts on its own authority.
However, the costs of residential care can force you to liquidate assets on your own. Staying in a nursing home is usually very expensive, and neither Medicare nor traditional health insurance cover these costs. While Medicaid does cover residential care, it requires you to have very limited assets and income. So, if you need to stay in a nursing home, it’s entirely possible that you will have to sell off assets either to pay the bills or to qualify for Medicaid.
For example, say that you’re a couple in your 70s. You have a paid-off home worth $420,000 and two IRAs worth $350,000 each. Here’s how to look at nursing home costs.
You can also consider working with a financial advisor to help ensure your assets are protected.
The Average Costs of A Nursing Home
Residential care, such as a nursing home, is very expensive.
The average cost of living in a nursing home is between $8,000 and $9,000 per month. This is almost double the median retiree’s income of around $4,500 per month. Yet a nursing home is not like a retirement community. Individuals move here when they need 24-hour access to medical care or help with day-to-day living. This can create a real problem for many households if they need care but can’t pay for it.
Now, these prices can vary pretty widely. Most notably, nursing home costs depend significantly on location. A home in Texas or Alabama will cost much less than one in New York (where property is more expensive) or Alaska (where nurses are in higher demand). A home in the city will cost much less than one in a rural or even suburban setting.
So you have some flexibility with costs if you’re willing or able to relocate. Although, think carefully before moving too far from home. It’s easy to forget how much we depend on our friends and family until they’re a thousand miles away.
Can A Nursing Home Take Your Assets?
Just on the averages, a nursing home can cost around $96,000 per year. That’s for one person. If both you and your spouse need care, we might have to double that number to $192,000. The good news is, they cannot simply take that from you.
A nursing home does not come with power of attorney or any automatic lien on your assets. If a facility does ask for that, or tries to sneak it into the paperwork, report them to the relevant state authorities. This means that they do not have access to your property. They cannot withdraw money from your portfolios, for example, and they cannot sell or take a loan out against your house. They have the same direct rights to your property as any other third party, which is to say, none.
But they also have the same indirect access to your property as any other third party, which is to say that you will need to tap into your savings and property to pay their bills.
Staying in a nursing home can cost you your savings, because the costs are so very high. At an average of $96,000 per year, it’s common for households to sell and mortgage major assets to pay their bills.
Here, for example, you have $700,000 in your combined IRAs. At a 4% withdrawal rate, that would generate $28,000 per year. The average Social Security benefit at time of writing is $1,976 per month, $23,712 per year. For the two of you, that comes to $47,424 in Social Security benefits, plus your portfolio withdrawals, for a combined $75,424. This isn’t a bad retirement income, but it’s about 75% of what you would need to pay for just one person’s nursing home stay.
So, to pay these bills, you might need to start selling off larger segments of your assets. You might need to liquidate more of your portfolio, or sell your house. This isn’t a matter of seizure, just costs.
In edge-case scenarios, a nursing home could theoretically sue if you sign a contract and don’t make the payments. However even then, it would be the court taking your assets. Nursing homes are private third parties. The costs of staying there can force you to sell your assets, but they cannot take your retirement accounts or your house on their own. Consider speaking with a financial advisor who can help you make the most advantageous strategy based on your circumstances.
Medicaid and Nursing Home Costs
Paying for residential care has become a significant financial strain for many households. Even people who have comfortable and stable retirement savings often cannot afford to pay the high costs of nursing home care. As we note above, here you have a retirement income comfortably above the median, yet even 100% of your monthly income wouldn’t cover the costs of care for just one spouse (while also leaving the other destitute). You could sell your house, pocketing a comfortably tax-free $420,000 if it’s your first home you’ve sold as a married couple, but that would only cover four years of care for one spouse (while leaving the other with nowhere to live) or two years of care for the both of you.
This is not unusual for medical care, where costs typically far exceed the resources of average households. What’s different is that residential care is covered by neither standard health insurance nor Medicare.
However, it is covered by Medicaid.
Many households rely on Medicaid programs to pay for nursing home care. However, all Medicaid programs have a poverty requirement which limits the maximum assets and income you can have in order to qualify. The exact requirements differ from state to state. In all cases, however, you must own very little property and have a monthly income around the poverty level. A representative program, for example, will require you to have no more than $2,000 in total assets and income no more than twice the federal poverty level. Some assets are exempted under some programs, but not many.
A full discussion of Medicaid qualifications, and particularly how this program balances spousal income, is beyond the scope of this article. However, the program’s means-test is important. If you need to rely on Medicaid to pay for nursing home care, you must permanently get rid of your assets (called “spending down”) to meet the program’s poverty requirements. While an irrevocable trust can help you with this planning, it will always mean losing ownership or your property.
Here, your assets vastly exceed any state’s Medicaid requirements. In order to qualify for coverage, then, you would need to spend down, give away or place in trust your retirement accounts and (potentially) your home. Again, the nursing home cannot take those assets, but the costs can force you to get rid of them.
Long-Term Care Insurance
The solution to all of this is, for most households, long-term care insurance.
This is a specific type of health insurance that covers long-term and residential care, such as staying in a nursing home. In a way, it functions like Medicare gap insurance, since it covers potentially necessary health care that Medicare doesn’t pay for. If you have long-term care insurance, the policy will pay for your stay in a nursing. For retirees, this is how you can avoid the trap of residential care costs. This form of insurance is how you pay for a nursing home without having to sell your assets or rely on Medicaid.
Unfortunately, this too is not cheap. The average premiums for long-term care insurance range from around $2,000 to $3,700 per year, or around $170 to $300 per month. As with all forms of health insurance, it costs less the earlier you get it. If you take out a long-term care insurance plan in your 40s or 50s, you can get a much better price than if you take it out in or near retirement. This can make long-term care insurance a vital part of retirement planning during your working life.
In your 70s, this kind of policy is far more difficult to access. Taking out long-term care insurance near or in retirement is like taking out health insurance after you get sick. Your premiums will be very high, because at this point the policy’s only function will be to pay your bills. It’s possible that you can still find a policy that works for you, so it’s worth looking, but it will likely be difficult.
Speak to a financial advisor to review your options. With more than $1.1 million in combined assets, you do have some potentially strong options. This one might take some work, though, and creativity.
Bottom Line
A nursing home cannot seize your assets. They have no direct authority or control over your money or property. However, staying in a nursing home is extremely expensive. Unless you have a good financial plan, paying for one can quickly drain your assets.
Tips on Managing Medicaid
- A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you are in retirement already and don’t have the significant assets necessary to pay for nursing home care, then there’s a good chance you will need to rely on Medicaid. In that case, here are some strategies to help you protect your most important assets from the program’s poverty requirements.
- Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
- Are you a financial advisor looking to grow your business? SmartAsset AMP helps advisors connect with leads and offers marketing automation solutions so you can spend more time making conversions. Learn more about SmartAsset AMP.
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