In 2024, the median cost of a a private room in a nursing home is $9,872 per month or $8,641 for a semi-private room. Annually, this amounts to over $100,000 a year which is high enough that even seniors with a good monthly retirement income may struggle to pay expenses.
So what happens if you don’t have enough money to cover nursing home costs?
State governments may offer to cover these expenses through Medicaid, but doing so opens the door for the individual’s home to be taken away after they pass away. Through the Medicaid Estate Recovery Program, the government can file a claim on an individual’s estate to collect assets such as leftover money, a home, investments, vehicles, and anything else of value. This means that people’s homes and other assets can be taken away instead of going to beneficiaries when they die.
Luckily, there are ways to avoid a nursing home from taking your house. Here’s everything you need to know about how they collect and ways to hold onto your assets if you or someone you know requires nursing home care.
Can a Nursing Home Take Your House?
Nursing homes cannot take a person’s home or require them to sell it to pay for care. However, people who use Medicaid to cover nursing home costs are at risk of their home being seized by the government upon their death to reimburse the expenses.
If an individual pays for some or all nursing home expenses through Medicaid, states can seek repayment upon their death through the Medicaid Estate Recovery Program (MERP). Each state has their own MERP laws, but assets will never be seized while the person receiving care is alive. Instead, the state can choose to file a claim on the person’s estate after they die. A person’s estate includes anything of value such as remaining bank funds, investments, vehicles, and their home.
The process starts with the states sending a letter to beneficiaries requesting reimbursement for nursing home costs. States will then file a claim on the deceased person’s assets and choose to withdraw directly from cash reserves, collect assets that will be sold, or place a lien on property preventing it from being sold until the debt is repaid.
How Far Back Can a Nursing Home Take Your House?
A person’s house will never be seized during their lifetime to cover nursing home expenses; a claim can only be filed after their death. Generally, the statute of limitations requires states to initiate estate within one year of the person’s death. This period may be extended if the deceased person has a surviving spouse, child under the age of 21, or a disabled child of any age.
7 Ways to Protect Your Home From Being Taken
If you or someone you know has used Medicaid to help pay for nursing home costs, the state may be able to collect assets including a house to seek repayment. Here are a few ways you can avoid this from happening:
1. Purchase Long-Term Care Insurance
Long-term care insurance is a special type of insurance that’s main purpose is to cover care expenses such as stay in a nursing home, assisted living facility, adult day care, or home health care. If an someone has this insurance and develops a chronic illness or requires care services to help with activities of daily living, the policy offers a daily or monthly benefit that will cover expenses up to a certain amount such as $150 per day or $4,500 per month. Anything beyond that will need to be covered by the individual.
This option can help cover a lot of nursing home and other care expenses, but premiums can be high for older individuals and some people may be hesitant about purchasing something they may not end up needing. Despite the risk, research suggests 7/10 people will require some form of long-term care in their lifetime so long-term care insurance is likely to be utilized.
2. Sell or Transfer Assets
Your home can’t be taken if you’ve already sold or given it to someone else, right? A lot of people wonder if they can simply offload their assets before going to a nursing home so the state has nothing to file a claim against and no means for repayment. In theory, this makes sense, but there are strict rules about how someone needs to do this to avoid being disqualified from Medicaid.
Medicaid is intended to help people who lack the financial resources to cover care for themselves, so the government doesn’t want people selling or giving away all their assets to appear financially incapable of paying for their living expenses.
To prevent people from exploiting Medicaid, the government utilizes a 5-year look-back period during the program’s application process. When someone applies for Medicaid, the government will look at 5 years of the person’s financial transactions including purchases, sales, and transfers of assets. If the government finds any transactions that violate the program’s rules, such as a house transfer, they will assume the person has the financial ability to cover their own expenses. As a result, the applicant may be ineligible for Medicaid and will have to cover nursing home costs on their own.
To avoid disqualification from Medicaid, a person would need to sell or transfer their assets at least 5 years before applying. Doing so extends beyond the look back period, so they can still apply for Medicaid and have it pay for nursing home care later in life. Upon the recipient’s death, they will have no assets for the state to collect from.
3. Create a Medicaid Asset Protection Trust
When signing up for Medicaid, you can work with a lawyer to transfer your home and other assets into a Medicaid Asset Protection Trust (MAPT). Doing so involves appointing a trustee (usually an adult child) who controls all assets in the trust. For a home, the Medicaid recipient can access income from the home by renting it out, but the home itself belongs to the trust and it’s estimated value won’t count towards the Medicaid recipient’s asset total.
This can work out well if the Medicaid recipient has a spouse or beneficiary who wants to remain living in the home, or the recipient doesn’t plan to move into a nursing home for several years. Additionally, this option allows the trustee to sell the home without a Medicaid penalty.
However, Medicaid estate recovery laws vary by state and in some cases a home placed in a MAPT may not be exempt from seizure. Before moving your assets into a MAPT, it’s best to speak with an elder law attorney to get a better understanding of the laws in your state.
4. Choose Home Health Instead
Nursing homes are typically the most expensive type of care, so they should only be utilized when it’s absolutely necessary. While a nursing home costs average between $7,908-$9,034 per month, in-home care ranges from $4,957-$5,148 which is significantly cheaper. To save money, children can hire an in-home care provider to watch the parent during the day and then take over later at night (or watch the parent all day to save more money). By having the parent stay home and saving money, it may be possible to pay for a nursing home out of pocket when a higher level of care is needed.
5. Form a Life Estate
A life estate is a type of joint property ownership that divides control and ownership of a property between two or more people. The person who forms the life estate for their home is known as the life tenant, and the people they form it with are called remainderman because they have a “remainder interest” in the property. Typically, remainderman are children or beneficiaries of the life tenant.
While the life tenant lives, they retain control of the property and can choose to live there or rent it out without consent of the remainderman. However, the life tenant would need consent of the remainderman if they decide to sell the property. When the life tenant passes away, the property skips probate and goes directly to the remainderman. If the life tenant racks up large bills while staying in a nursing home, a life estate can help prevent the state from seizing their home after death. Just be aware that you need to form a life estate at least five years prior to applying for Medicaid to prevent a penalty, and we recommend working with an attorney to set the life estate up in a way that won’t put you at risk for losing benefits.
6. Purchase a Medicaid-Compliant Annuity
An annuity is a contract that allows a person to pay a lump sum of money to a company in exchange for a fixed series of equal payments over a set period of time that’s typically 5, 10, 15, or 20 years. You can purchase a Medicaid-compliant annuity to “spend down” and reduce the income and assets Medicaid looks at when deciding if you’re eligible for benefits. This strategy is frequently used for couples when one partner needs long-term care like a nursing home and the other does not. By purchasing an annuity that’s Medicaid-compliant, the couple’s total assets may be reduced allowing them to qualify for Medicaid which allows the unhealthy spouse to receive benefits. Meanwhile, the healthy spouse will receive a consistent stream of income that can be used to pay for their own living expenses.
You may be able to use a Medicaid-compliant annuity to protect your home from being recovered by the state. To do so, you could essentially sell your home to the bank and use the proceeds to purchase a Medicaid-compliant annuity, then use your fixed payments to buy it back through mortgage payments while you remain living there. Medicaid rules are strict, so we recommend working with an attorney or financial advisor to make sure you don’t trigger a penalty that disqualifies you from benefits.
7. Pay With Your Life Insurance Policy
Long-term care insurance isn’t the only insurance related method for paying for a nursing home. Depending on your policy type and other factors, you may be able to sell your life insurance policy for up to 60% of the death benefit. By doing so, you can use the proceeds to pay for nursing home costs instead of relying on Medicaid and risk your home being taken away. As an added bonus, you won’t have to pay life insurance premiums that can become expensive as you get older. To find out how much your policy is worth, use our life settlement calculator.
