Do Nursing Homes Take Your Assets?

The prospect of needing nursing home care often brings significant financial concerns for individuals and their families. Many people worry that their accumulated savings and property will be entirely depleted to cover the high costs of long-term care. While nursing home expenses are substantial, and financial eligibility rules for assistance programs are strict, it is important to understand that assets are not automatically “taken.” Instead, there are specific regulations and planning considerations that determine how assets are treated when long-term care becomes necessary.

Understanding Nursing Home Costs and Payment

Nursing home care can be very expensive, with national median costs often exceeding $9,000 per month. These costs vary significantly based on location, room type, and individual care needs. Understanding how such care is financed is important for financial planning.

Individuals often begin by using their personal funds. Another option is long-term care insurance, specifically designed to cover custodial care expenses not covered by standard health insurance. However, these policies can have high premiums and may not be available for purchase once care is already needed.

Medicare, the federal health insurance program, provides only limited coverage for nursing home care. It primarily covers short-term, skilled nursing facility care for a maximum of 100 days. Medicare does not cover long-term custodial care, which constitutes the majority of nursing home needs. For individuals requiring long-term care who have limited financial resources, Medicaid becomes the primary government program, covering a significant portion of nursing home costs.

Medicaid Asset Rules and Eligibility

Medicaid is a joint federal and state program designed to provide health coverage, including long-term care services, for individuals with limited income and assets. To qualify for Medicaid-funded nursing home care, applicants must meet specific financial eligibility criteria. The general asset limit for an individual applicant is very low, often around $2,000, though this can vary by state and program type.

Beyond direct asset limits, Medicaid scrutinizes financial transactions through what is known as the “look-back period.” This period, 60 months (five years) prior to the Medicaid application date, is designed to prevent applicants from transferring assets for less than fair market value to qualify for benefits. Any uncompensated transfers or gifts made during this five-year window can result in a penalty period of Medicaid ineligibility, meaning the individual must pay for their care privately during that time. The length of the penalty period depends on the value of the uncompensated transfer.

States have a mandatory Medicaid Estate Recovery Program (MERP) to seek reimbursement for long-term care costs paid on behalf of a deceased Medicaid recipient. This recovery occurs from the recipient’s estate after their death, often targeting assets like a home that were exempt during their lifetime. However, specific protections exist, such as when a surviving spouse or minor/disabled child resides in the home, which can delay or prevent recovery.

Treatment of Specific Assets

Medicaid rules classify assets as either “countable” or “exempt” when determining eligibility for long-term care. Countable assets include readily available financial resources such as cash, bank accounts, stocks, and other investments. These assets are expected to be used to pay for care until the individual’s resources fall below the established asset limit.

Certain assets are considered exempt. A primary residence, for example, is exempt if the applicant intends to return home, or if a spouse, minor child, or disabled child lives there. However, the home may become subject to Medicaid Estate Recovery after the recipient’s death. One vehicle is exempt, as are most personal possessions and household goods.

The treatment of retirement accounts, such as IRAs and 401(k)s, can vary. These accounts are considered countable assets. For life insurance policies, term life insurance has no cash value and is therefore exempt, but whole life insurance policies with a cash surrender value may be counted as an asset. Annuities, while used in planning, are complex; they must meet specific Medicaid-compliant criteria, such as being irrevocable and actuarially sound, to be considered an income stream rather than a countable asset.

Asset Protection Strategies

Individuals seeking to qualify for Medicaid while preserving some assets explore various legal strategies. One approach is “spending down” assets, which involves using excess countable resources for allowed expenses. This process aims to reduce an individual’s countable assets to the Medicaid eligibility limit.

Medicaid-compliant annuities offer a way to convert a lump sum of countable assets into a guaranteed income stream. By purchasing such an annuity, the asset is no longer considered countable for eligibility purposes, although the monthly payments from the annuity count as income. These annuities must be irrevocable, non-assignable, and name the state Medicaid agency as the primary beneficiary after the annuitant’s death.

Another strategy involves transferring assets into an irrevocable trust. With an irrevocable trust, the grantor gives up control and access to the assets, which can then be protected from being counted for Medicaid eligibility. However, assets transferred to such trusts are subject to the Medicaid look-back period.

Gifting assets to family members can also be considered. Any gifts made within the five-year look-back period can trigger a penalty period of Medicaid ineligibility. Formal caregiver agreements, where a family member is paid for providing care, can be a legitimate spend-down strategy. These agreements must be in writing, specify services and compensation, and reflect fair market rates.

Spousal Protections

Federal and state laws include specific provisions to protect the financial well-being of the “community spouse” — the spouse who remains at home when the other spouse enters a nursing home and applies for Medicaid. These rules aim to prevent the community spouse from becoming impoverished.

One key protection is the Community Spouse Resource Allowance (CSRA). This allowance permits the community spouse to retain a certain amount of the couple’s countable assets, ranging up to a state-specific maximum. The exact amount is based on the couple’s total countable assets, with the community spouse allowed to keep a portion up to the state’s maximum.

Additionally, the Minimum Monthly Maintenance Needs Allowance (MMMNA) allows the community spouse to receive a portion of the institutionalized spouse’s income if their own income falls below a certain threshold. This allowance, which varies by state, is designed to ensure the community spouse has sufficient income to meet their living expenses. In 2025, the MMMNA can range up to a state-specific maximum, dependent on state regulations and the community spouse’s actual shelter costs.