Can Roth IRAs and Trusts Block Nursing Homes?
A retired couple is considering their options for paying for long-term care.

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Can a nursing home confiscate your savings? What if your money is in a trust or Roth IRA? These are important questions for both married and single retirees, and the answers are nuanced.

First, the good news: A nursing home cannot simply take away your retirement accounts or savings. Without the need to take legal action due to unpaid bills, you can distribute your assets as you see fit. However, you must plan ahead to optimize your end-of-life finances, especially since in some cases the government may seize assets after death to pay for nursing home expenses.

Long-term care, especially living in a nursing home, can be expensive. Options for paying these costs include self-pay, private insurance, and Medicaid. Your assets, even in a Roth IRA or certain types of trusts, may affect your eligibility for the latter. If you need help planning for your long-term care needs, consider working with a financial advisor.

Long-term care, which includes help ranging from homemaker services and home health aides to nursing home care, is expensive. In fact, the average monthly cost of a private room in a U.S. nursing home is expected to be $9,584 by 2023, according to GenWorth, an insurance company that offers long-term care insurance. By 2033, these costs are expected to increase to nearly $13,000 per month.

That's well beyond what most people can afford on their retirement income and many times what Social Security payments are. That's why it's important to plan ahead, says Alec F. Root, chartered financial analyst (CFA) at DBR & Co.

"As with estate planning in general, it's helpful to have these conversations early on, especially before a person's health changes that may impact their ability to provide themselves with appropriate insurance," he told SmartAsset. "Five to 10 years before retirement is usually a good time to discuss this topic. A strong estate plan will detail the provisions for late-life care, and a good financial plan will account for nursing home care and eventual costs."

Medicare does not cover the cost of nursing homes or other facilities. Instead, generally speaking, the best way to afford long-term care may be through specialized long-term care insurance. The earlier you purchase this insurance, the cheaper it will be. For a healthy 55-year-old, you can expect to pay $950 to $1,500 per year for this coverage, according to the American Association of Long-Term Care Planning. By age 65, these average earnings jump to between $1,700 and $2,700 per year. So be prepared in advance.

Remember, a financial advisor can walk you through your options for paying for long-term care and may even help you purchase an insurance policy.

A Medicaid beneficiary is wheeled through a nursing home.
A Medicaid beneficiary is wheeled through a nursing home.

If you can't afford long-term care insurance, the next most common option is Medicaid—the government program that provides health care to low-income families. It also provides coverage for nursing homes, although its coverage is often limited. However, it is important to realize that through the Medicaid Estate Recovery Program (MERP), the government may repossess someone's assets to repay nursing home expenses.

Medicaid also has strict income and asset caps, and each state has its own eligibility requirements and coverage. For example, in New York, your monthly income cannot exceed $1,677 and your total assets cannot exceed $30,182. However, the state does not count your IRA or Roth IRA in these total assets.

Note: Medicare, the health care program for all Americans over 65, does not pay for long-term care facilities.

In Massachusetts, on the other hand, your monthly income cannot exceed $1,215 and your total assets cannot exceed $2,000. There, the state does include your IRA in those total assets.

Remember, if you have an IRA, you must take required minimum distributions (RMDs) before age 73. These withdrawals will count toward your annual earnings cap. Roth IRAs, on the other hand, are not subject to RMDs, but states may count the portfolio toward your total assets, as they do in Massachusetts. But if you need help calculating your RMDs or managing your Roth assets, consider talking to a financial advisor.

If your wealth exceeds these limits, you may have to spend nearly all of your wealth to qualify for coverage. Then again, if you need Medicaid to pay for your nursing home expenses, there are ways to protect your assets.

"Traditional investing is vulnerable to these financial threats, which is why we need to explore alternative avenues," said Dutch Mendenhall, CEO of RAD Diversified and author of Money Shackles.

You can transfer funds to assets that your state's Medicaid program does not count toward eligibility limits. In addition to the potential for a Roth IRA to protect your assets from Medicaid, many families also want to keep their funds in a trust. Doing so can reduce your paper wealth, making it possible for you to qualify for Medicaid.

"The use of a trust, such as an irrevocable trust, is a powerful weapon in your arsenal to protect your assets from the voracious appetite for long-term care expenses," Mendenhall said.

"Putting your assets in an irrevocable trust effectively removes them from your ownership, making them less susceptible to being included as part of your financial assets when determining Medicaid eligibility," he added. "This separation could be a game changer, potentially protecting your wealth."

But only irrevocable trusts can qualify for Medicaid. Assets in a revocable trust (i.e., assets that can be changed or revoked while you are alive) still count toward your total family wealth.

The typical vehicle is a form of irrevocable trust called a Medicaid Asset Protection Trust.

Note that there is usually a "look-back" period during which Medicaid considers your financial transactions before applying for long-term care. Assets you transfer to a trust may be subject to this scrutiny, so planning ahead is crucial. Most, if not all, states look back five years.

If you need help establishing a trust or deciding what type of trust to establish, find a financial advisor with estate planning expertise.

Long-term care insurance is a way to pay for expensive stays in a nursing home.
Long-term care insurance is a way to pay for expensive stays in a nursing home.

That's a complicated answer to the complicated question of whether a nursing home can take your savings. While a nursing home cannot seize your assets, this type of care is costly and can quickly deplete your savings. Experts recommend countering these costs through diversified investments, income-producing assets and long-term care insurance. If this is not an option, using a trust to qualify for Medicaid may be a potential way to obtain coverage. But the specifics will vary widely based on your personal situation, your assets and the state in which you live.

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