How to Protect Assets from Nursing Home Expenses?

You can’t always predict when you’ll need to enter a nursing home. But when the time comes, you don’t want to be left with anything but your savings and assets. You must take steps to protect what is yours from being used up by those costs. And while it might not seem like an easy process, there are ways to do it.

One way to protect your assets is to set up a special needs trust. It is a type of trust specifically designed to help those who are disabled and have difficulty managing their finances. The money placed into the trust is used to pay for nursing home care, assisted living, and even home care. This blog post will guide you through the process of protecting assets from nursing home expenses.

What Are the Nursing Home Expenses?

The nursing home expenses are the costs associated with the care of a person in a nursing home. These costs can vary depending on the type of facility, the location, and the level of care required. Nursing home expenses can be covered by private insurance, Medicare, Medicaid, or out-of-pocket by the individual.

The average cost of a nursing home stay in Canada is $7,000 per month, and this cost can vary depending on the nursing home’s location. For example, the average cost of a nursing home stay in Toronto is $8,500 per month, while a nursing home stay in Vancouver is $6,500 per month.

What Are the Different Types of Nursing Home Expenses?

There are several different expenses associated with nursing homes, including:

Room and board: This is the cost of your actual living space in the nursing home and the cost of food and other necessities.

Nursing care: This covers the costs of any medical care or assistance you may need while in the nursing home.
Additional services: This can include laundry, transportation, and social activities.
Medical supplies: This includes the costs of any medical supplies or equipment you may need while in the nursing home.
Prescription drugs: This includes the cost of prescription drugs you may need while in the nursing home.

Facility fee: You may need to pay a one-time fee when entering the nursing home.

Why Is There a Need to Protect my Assets from Nursing Home Expenses?

Following are the reasons to protect my assets from nursing home expenses:

To avoid depleting all of your assets: One of the main reasons to protect your assets from nursing home expenses is to avoid using up all of your assets. If you don’t have any protection in place, your entire savings and assets could be used up by the cost of care.

To qualify for government assistance: Another reason to protect your assets is to ensure you qualify for government assistance. If you have too many assets, you may not be eligible for government assistance like Medicaid or Canada’s Guaranteed Income Supplement.

To ensure your loved ones are taken care of, another reason to protect your assets is to ensure your loved ones are taken care of if you need to enter a nursing home. If you don’t have any protection in place, your loved ones may have to use their assets to pay for your care.

How Can I Protect my Assets from Nursing Home Expenses?

There are several ways you can protect your assets from nursing home expenses, including:

Setting up a special needs trust: A special needs trust is specifically designed to help those who are disabled and have difficulty managing their finances. The money placed into the trust is used to pay for nursing home care, assisted living, and even home care.

Buying long-term care insurance: Long-term care insurance is an insurance policy that covers long-term care costs. It can include nursing home care, assisted living, and home care.

Making a gift: You can gift your assets to a loved one to help them pay for nursing home expenses. It can be done either during your lifetime or through your will.

Paying for care in advance: You can also pay for nursing home care in advance which can help you avoid using up all of your assets. It can be done through various methods, including long-term care insurance, annuities, and life insurance policies.

Giving away assets: Another way to protect your assets is to give them away. It can be done through a process called gifting. You can gift up to $14,000 per year to each of your loved ones without paying any taxes on the gift.

Making a will: Finally, another way to protect your assets is to make sure you have a will in place. A will allows you to designate who will inherit your assets in the event of your death. If you don’t have a will, your assets will be distributed according to the laws of your state.

What Are the Tax Implications of Protecting my Assets from Nursing Home Expenses?

Several tax implications are associated with protecting your assets from nursing home expenses. For example:

If you set up a special needs trust to help pay for nursing home care, you may be able to claim a tax deduction for the amount you contribute to the trust.
If you purchase long-term care insurance, you may be able to deduct the premiums from your taxes.
If you give away assets to a loved one to help them pay for nursing home care, you may be subject to gift taxes.

If you pay for nursing home care in advance, you may be able to claim a tax deduction for the amount you spend.

Make sure to speak with an accountant or tax specialist to learn more about the tax implications of protecting your assets from nursing home expenses.

What Are Some of the Risks of Protecting my Assets from Nursing Home Expenses?

There are a few risks to be aware of when it comes to protecting your assets from nursing home expenses, including:

The risk of losing government benefits: If you have too many assets, you may not be eligible for government benefits like Medicaid or Canada’s Guaranteed Income Supplement.

The risk of losing control over your assets: If you give away assets to a loved one, you may lose control over how those assets are used.
The risk of not having enough assets: If you don’t have enough assets to cover your nursing home expenses, you may use up all of your assets and leave your loved ones with nothing.
The risk of paying taxes: Several tax implications are associated with protecting your assets from nursing home expenses.

Make sure to speak with an accountant or tax specialist to learn more about the risks of protecting your assets from nursing home expenses.

How Can Nursing Home Expenses be Covered?

Nursing home expenses can be covered by several different sources, including:

Private insurance: If you have private insurance, your policy may cover some or all of a nursing home stay costs.
Medicare: Medicare will cover some nursing home stay costs, depending on your situation.
Medicaid: Medicaid is a government program that can help pay for nursing home stay costs.
Out-of-pocket: You may also be able to pay for some or all of the costs of a nursing home stay out-of-pocket.

How Do I Set Up a Special Needs Trust?

Setting up a special needs trust can be a complicated process, and you may want to speak to an attorney about setting one up. However, here are some basic steps:

Choose a trustee: The trustee is responsible for managing the trust and ensuring the money is used to benefit the person with disabilities.
Draft a trust agreement: This document will outline the trust’s specific terms, including how the money will be used and who will be responsible for managing it.
Fund the trust: The trust must be funded with enough money to cover the anticipated care costs. It can be done through a lump-sum payment or a regular payment schedule.
Get approval from Social Security: To qualify for Medicaid, the trust must be approved by Social Security.
Please keep track of expenses: The trustee will need to keep track of all the expenses related to the care of the person with disabilities and report them to Social Security.

Can I Use my Life Insurance Policy to Pay for Nursing Home Expenses?

You may use your life insurance policy to pay for nursing home expenses, but you should speak to an insurance broker to learn more about your specific policy. Generally, policies that allow you to borrow against the death benefit will also allow you to use the money for other purposes, like paying for a nursing home.

To take a life insurance policy out for this purpose, you need to show that you have a legitimate need for the money. It can be done by providing evidence of your current or impending nursing home expenses.

Is There a Limit to How Much Money I Can Protect from Nursing Home Expenses?

There is no limit to how much money you can protect from nursing home expenses, but there are limits on how much money you can give away without incurring gift taxes. For 2020, the annual gift tax exclusion is $15,000 per person, which means you can give up to $15,000 to each person without paying any gift taxes.

If you give more than $15,000 to a single person in a year, you will have to pay taxes on the amount over $15,000. However, you may avoid these taxes by using a special needs trust.

Speak with an accountant or tax specialist to learn more about the risks of protecting your assets from nursing home expenses.

Conclusion

If you are not already, start saving now. You can’t put your assets in a time capsule and expect them to be there when you need them; instead of waiting for the worst-case scenario, plan by putting away money so that it is available if needed. Most importantly, don’t forget about retirement–it may seem far off, but the sooner you save, the better off you will be in the long run.

No one knows what the future holds, but by preparing for all sorts of possibilities, you can rest assured that you will be able to handle whatever comes your way. So start saving today and don’t look back!