What Steps Can I Take Now to Protect My Assets If I Need Assisted Living?

How can I Protect My Assets If I Need Assisted Living? 

Nursing home costs are skyrocketing, causing many seniors to worry that they will be forced to deplete hard-earned resources that might otherwise be passed on to their children and grandchildren. Fortunately, there are steps that older Americans can take now – before they need assisted living care – to cover these expenses while shielding their wealth and property.

How MassHealth/Medicaid can help 

MassHealth is a joint state-federal Medicaid program available to low-income residents of Massachusetts. If you are concerned about being able to pay for assisted living, consider whether you might be eligible.  

One important thing to know about this program is its five-year lookback window and limit of $2,000 in countable assets. When you apply for MassHealth, the government has the right to review your bank and other financial records in the five years immediately preceding the application date. That’s because certain assets are counted against applicants for purposes of determining eligibility for the program. The state wants to prevent abuse by ensuring only those who truly need MassHealth are approved. This makes it imperative to plan early and carefully. 

Transferring assets and making gifts 

One way to reduce your countable assets is to strategically transfer certain property and give gifts to others. But remember, the five-year lookback window will apply. If money, property, or other assets were given to someone during that period, the state will disqualify the applicant for some amount of time. 

Making gifts is also complicated because of tax and creditor rules. For example, you could cause the recipient of your gift to incur tax liability. Also, if the recipient has creditors, they may be able to make claims against the assets they receive. Ask a knowledgeable estate planning attorney how to properly give and transfer property to others. 

Creating an irrevocable trust 

An irrevocable trust is, as the name implies, one that cannot be revoked once it is created. It also cannot be altered. These instruments play a critical role in ensuring individuals do not have to deplete their personal assets to pay for assisted living care. 

You can place assets (including your home) in the irrevocable trust and name a trustee who is responsible for managing it. It is important to know that this will mean that you no longer own your home or other trust property in your own name and may have to give up some control over the property. Although you will no longer own any property placed in the trust, you may be able to use it for the duration of your lifetime. 

Because property that is placed in the irrevocable trust is no longer considered yours, it doesn’t count against you for purposes of determining Medicaid/MassHealth eligibility. However, the five-year lookback rule applies here also. The government will examine when the assets were transferred to the trust in determining your eligibility. 

Using a life estate 

A life estate is a real property interest that is limited to a person’s (life tenant’s) lifetime, after which it passes to someone else (the remainderman). The life tenant can use the property during his or her life but cannot waste or sell the property without the remainderman’s consent. Life estates can be important for estate planning because they allow a former owner to transfer certain interests in their real estate to their children during their lifetimes while preserving their right to live in the property.  

This may sound similar to the irrevocable trust, but there is a major difference. If the house is sold during your lifetime, a portion of the proceeds from it may count against you when you apply for MassHealth. Said proceeds may also be exposed to creditor claims. These scenarios don’t apply with irrevocable trust. However, the five-year lookback rule does.