How to Protect Assets if Your Spouse Goes Into a Nursing Home

When a loved one needs nursing home care, it often comes as an enormous emotional and financial shock to families. The prospect of paying $5,000, $10,000, or even $15,000 per month for skilled nursing care can be daunting, even for those who consider themselves financially comfortable during their working years.

Like many of the Minnesota and Wisconsin families we work with, you may be wondering: how can I pay these bills without going broke? Is there any way to protect our hard-earned assets? This guide will walk you through the key steps to shield assets while still paying for needed care. With proper planning, you can still preserve your savings even when long-term care enters the picture.

The Startling Costs of Nursing Home Care

Let’s start by looking at some numbers. According to the MN Department of Human Services, the median cost of nursing home care in the state is over $90,000 per year.

And that’s just for basic room and board. Additional costs for medical care, therapies, and other services can add thousands more to the monthly bills. It’s easy to see how quickly these expenses can snowball, rapidly depleting even substantial life savings.

What about Medicare, you might ask? Doesn’t that help pay? Unfortunately, Medicare provides only limited nursing home coverage for short-term rehabilitation stays or for those with certain conditions requiring skilled care. Custodial care – help with daily living activities like dressing, bathing, and feeding – does not qualify. Medicaid, not Medicare, is the government program that pays for custodial care, but only after you’ve spent down your assets significantly.

Navigating Medicaid Eligibility for Nursing Homes

Medicaid does cover long-term care both in the nursing home, in your home, or in assisted living. But, to qualify in Minnesota and Wisconsin, you must meet strict income and asset limits. In 2024, individuals can only have $3,000 in allowable assets. If you are married, your non-applicant spouse can keep up to $154,190 in assets. In addition, you may keep a house if you are living in it, and a car.

Furthermore, there is a 5-year lookback period during which you need to follow the tricky Medicaid rules as you spend down your assets. If you violate the rules during the lookback period, even unknowingly, the government will impose penalties for gifting or asset transfers they consider improper.

That means the government will not pay for your care until you pay the penalty. You will be penalized, for example, if you gift money to your grandchildren for college, but you will not be penalized for gambling away the same amount of money.

Meeting Medicaid eligibility requirements means spending down your entire life savings first if you don’t plan ahead.

Strategies to Protect Your Assets and Pay for Care

Must you go broke to pay for nursing home care for yourself or a spouse? Absolutely not. With advance planning and advice from an experienced elder law attorney, many options exist to shelter assets legally and maintain quality care.

Avoid Costly Gifting Mistakes

One common mistake we see is families making large gifts or asset transfers to children or others, thinking this will make them Medicaid-eligible. Without proper counsel, gifting can easily run afoul of Medicaid rules and create substantial penalties. Any gifts must fall within strict guidelines to avoid penalties.

The good news is, we can advise you on how to make gifts to your loved ones and still comply with Medicaid rules. There are two relatively new tools in Minnesota that we use regularly to help our clients protect 50-80% of their assets and still qualify for Medicaid.

Use a Medicaid Compliant Annuity

Medicaid Compliant Annuities are relatively new tools in Minnesota, but they are one of the most powerful tools we use on a regular basis. This is not your typical annuity, this type of annuity should only be purchased as part of a detailed plan coordinated by an elder law attorney. Medicaid Compliant Annuities are not countable assets for Medicaid.

The more basic use of a Medicaid Compliant Annuity is a spousal annuity to protect assets for the spouse above the spousal limit.

A more sophisticated use of Medicaid Compliant Annuities is for strategic gifting. A carefully designed gift is made to trustworthy loved ones, and a Medicaid Compliant Annuity is then purchased to cover the cost of care during the penalty period Medicaid will assess for the gift.

For example, you may be planning to spend all your assets in the next three years and then go on Medicaid. Instead, you may do a strategic gift/annuity plan and apply for Medicaid in 2 months, saving 50-80% of the assets that you were originally planning to spend down.

Use a Medicaid Asset Protection Trust

In the Geyen decision in July 2021, the Minnesota Court of Appeals held that the Department of Human Services must honor Medicaid Asset Protection Trusts under the federal constitution. Since then, Minnesotans have officially been allowed to place assets in an irrevocable Medicaid Asset Protection Trust.

Typically, these are used when the client expects to have more than 5 years before applying for Medicaid. It is another gifting strategy that many of our estate planning clients are choosing to use rather than a Revocable Living Trust.

Both the Medicaid Compliant Annuity and the Medicaid Asset Protection Trust require very careful planning, drafting, and timing to work properly. But when done right, they enable families to preserve assets while still ensuring their loved ones receive care.

It’s Never Too Early to Start Planning for Long-Term Care

The key takeaway is this: the earlier you start planning for how to pay potential nursing home bills for yourself or a spouse, the more options will be open to you. Too often, families wait until the crisis is already here before consulting us, limiting their choices.

By assessing your financial picture now and putting plans in place while you (and your spouse, if any) are still healthy, you have the most flexibility to structure transfers, purchase exempt assets, set up trusts, and take other protective steps.

At a minimum, work with an estate planning attorney to ensure you have proper estate planning documents like wills, financial powers of attorney, and health care directives. Make sure your beneficiary designations and asset titling align with your attorney’s instructions to ensure they align with your wishes.

Importantly, if you are over 50 or may need care at a younger age, you want an estate planning attorney who is also a comprehensive Medicaid asset protection elder law attorney. This is important because attorneys like Safe Harbor Estate Law will ensure your estate plan documents and your assets maximize your potential for asset protection if long-term care needs arise.

Don’t Delay Once Care Becomes Necessary

Once care needs are imminent or already happening, it is crucial to act swiftly to implement asset protection measures. Even if you are in the five-year look-back period, we may be able to protect most of your assets if you reach out to us.

Your Medicaid Asset Protection Plan is more effective the sooner they are executed. The bottom line: don’t delay consulting an elder law attorney. The sooner you start planning, the more assets can be protected legally and the less stress you and your loved ones will have.

At Safe Harbor Estate Law, our attorneys work with hundreds of Minnesota families every year who are facing these difficult situations. We guide clients to make informed choices that balance maintaining quality care while still passing assets down as they wish. This peace of mind is invaluable during an already stressful time.

Book a consultation to review your situation and outline steps you can take to protect your nest egg for your spouse and family. We’re here to help support and guide you through this challenging transition.