How to Protect Money From a Nursing Home

Needing long-term care, especially in a nursing home, presents a significant financial concern. The high costs can quickly deplete savings, making it important to understand options for managing and protecting assets. This article explores various approaches to funding long-term care and preserving wealth.

Understanding Long-Term Care Costs and Funding Options

The average cost for a semi-private room in a nursing home can range from approximately $8,929 to over $10,025 per month across the United States. Individuals typically fund long-term care through several primary avenues.

Private pay, or out-of-pocket payment, involves using personal savings, investments, or retirement funds. This method offers flexibility but can quickly deplete assets due to high daily and monthly rates.

Medicare, the federal health insurance program for those aged 65 or older and certain younger individuals with disabilities, provides limited coverage for nursing home care. It primarily covers short-term skilled nursing facility (SNF) stays, typically for rehabilitation after a hospital stay, and not long-term custodial care. Medicare Part A may cover up to 100 days per benefit period, but this coverage often requires a qualifying hospital stay of at least three inpatient days and is contingent on the need for skilled, medically necessary services. After 20 days, a daily coinsurance amount applies, which was $209.50 per day in 2025.

Medicaid, a joint federal and state program, serves as another funding source for long-term care. Unlike Medicare, Medicaid is a means-tested program, meaning eligibility is based on an individual’s income and asset levels. It provides comprehensive coverage for nursing home care for those who meet specific financial and medical criteria.

Long-Term Care Insurance offers a contractual solution to help cover costs. Policyholders pay premiums, and in return, the insurance company provides benefits for various long-term care services, including nursing home care, when specific triggers are met.

Medicaid Eligibility Requirements for Long-Term Care

To qualify for Medicaid, individuals must meet specific asset and income limits, which vary by state but generally involve very low thresholds. For a single applicant in 2025, the countable asset limit is commonly $2,000, and the monthly income limit is often around $2,901.

A key component of Medicaid eligibility is the “look-back period.” When an individual applies for long-term care Medicaid, the state Medicaid agency reviews their financial transactions for the 60 months (five years) immediately preceding the application date. This review identifies any transfers of assets made for less than fair market value.

If assets were transferred for less than fair market value during this look-back period, a “penalty period” of Medicaid ineligibility may be imposed. The length of this penalty period is calculated by dividing the total value of the uncompensated transfers by the average monthly cost of nursing home care in the applicant’s state (known as the “penalty divisor”). For example, if $60,000 was gifted and the state’s penalty divisor is $10,000, a six-month penalty period would result. The penalty period begins on the date the applicant would otherwise be eligible for Medicaid, not the date of the transfer.

Certain assets are considered “exempt” or non-countable for Medicaid eligibility. These generally include a primary residence, provided its equity value does not exceed state-specific limits (often ranging from $730,000 to $1,097,000 in 2025). Other exempt assets include one automobile, household furnishings, personal belongings, and pre-paid irrevocable funeral plans. Certain life insurance policies with a face value below a specific threshold may also be exempt, or only their cash value might be counted.

Strategic Asset Management for Medicaid Eligibility

One strategy involves the use of irrevocable trusts, specifically Medicaid Asset Protection Trusts (MAPTs). When assets are transferred into an irrevocable trust, they are generally no longer considered owned by the individual for Medicaid eligibility, provided the transfer occurred outside the look-back period. This type of trust is irrevocable, meaning the grantor relinquishes control over the assets, and they cannot be easily retrieved.

Gifting assets is another approach, but it must be carefully timed in relation to the Medicaid look-back period. Any transfer of assets for less than fair market value within the 60-month look-back period can trigger a penalty period, delaying Medicaid eligibility. Even gifts below the annual federal gift tax exclusion amount can still result in a Medicaid penalty, as Medicaid rules are distinct from IRS gift tax regulations. To avoid penalties, gifts must be completed well in advance of a Medicaid application, ideally more than five years prior.

Medicaid-compliant annuities offer a way to convert countable assets into a non-countable income stream. These annuities must meet specific criteria: they must be immediate, irrevocable, non-assignable, actuarially sound, and name the state Medicaid agency as the primary beneficiary after the annuitant’s death. While the lump sum used to purchase the annuity reduces countable assets, the resulting income stream is counted towards the applicant’s monthly income limit.

Personal care agreements, also known as personal services contracts, provide a formal method for an individual to pay a caregiver for future services. This written contract details the services to be provided, the frequency, location, and a reasonable rate of pay, which should align with local market rates for similar care. Payments made under a properly structured personal care agreement are considered compensation for services, not a gift, thus avoiding a Medicaid transfer penalty. These agreements must be established before services are rendered and cannot be retroactive.

For married couples, “spousal impoverishment rules” prevent the community spouse (the one not requiring long-term care) from becoming impoverished when the other spouse enters a nursing home and applies for Medicaid. These rules allow the community spouse to retain a portion of the couple’s combined countable assets, known as the Community Spouse Resource Allowance (CSRA). In 2025, the CSRA can be up to $157,920. The rules also protect a Minimum Monthly Maintenance Needs Allowance (MMMNA) for the community spouse, allowing them to receive a portion of the institutionalized spouse’s income if their own income falls below a certain threshold. The MMMNA ranges from approximately $2,555 to $3,948 per month in 2025, depending on the community spouse’s housing and utility costs.

Long-Term Care Insurance as a Standalone Protection Tool

Long-Term Care (LTC) Insurance provides a financial solution for covering the costs of extended care, including nursing home stays. Policyholders pay premiums in exchange for future benefits when care is needed.

LTC insurance policies cover a range of services beyond just nursing home care, which may include assisted living facilities, adult day care, and home health care. Benefits become available when “benefit triggers” are met, which usually involve an inability to perform a specified number of Activities of Daily Living (ADLs) without assistance, or the presence of a severe cognitive impairment. ADLs commonly include bathing, dressing, eating, toileting, transferring, and continence.

Once a benefit trigger is met, an “elimination period” must pass before the policy begins paying benefits. This period acts like a deductible, measured in time rather than a dollar amount, during which the policyholder is responsible for care costs. Common elimination periods range from 30 to 90 days, though some policies offer longer options, which can reduce premium costs.

LTC insurance policies also specify a “benefit period,” which is the maximum duration for which benefits will be paid, and a daily or monthly benefit limit. For example, a policy might offer a $200 daily benefit for a three-year period.