Ask an Advisor: My Wife and I Have a $100K IRA and a Trust, Can a Nursing Home Take Our Assets?

Long-term care (LTC), which may include nursing home stays, is expensive and can quickly suck up savings you may have intended for something else.

How do you prevent that from happening? The specific answer depends on variables you didn't reveal. But in my experience, when people talk about "protecting" assets from LTC costs, they often have Medicaid in mind. So what does that look like? (And if you need more help planning for long-term care costs, consider working with a financial advisor ).

Medicaid is often viewed as a "safer" option for long-term care for the simple reason that it is less expensive and therefore less likely to drain your assets. But Medicaid eligibility is governed by strict income and asset limits. While those limits vary by state, having a $100,000 IRA will likely disqualify you from Medicaid coverage.

So now you are faced with a paradox: The assets you want to save by means of cheap healthcare are an obstacle to getting cheap care in the first place.

It is at this point that an estate attorney or well-meaning friend might suggest you rearrange your assets in such a way as to exempt them from the eligibility limits. The idea is to make yourself less wealthy on paper to qualify for Medicaid without actually giving away your assets.

If this sounds tricky, that's because it often is. For one thing, many states use a five-year lookback period when determining Medicaid eligibility. This means that if you do any fancy asset-shuffling in the five years before applying, your efforts will have been in vain. (And if you need help determining whether you're eligible for Medicaid, consider matching with a financial advisor. )

If you're willing to plan ahead and do your homework, there are a few options for relocating your assets so that you can potentially qualify for Medicaid.

Annuities: Any money you put into a "Medicaid-compliant" annuity will not count against your asset limit and will be exempt from the lookback period, as well. The catch – and it's a big one – is that the money is totally locked up, except for whatever periodic payment you receive from the annuity. And that payment will count against the income eligibility limit.

Home equity: In most cases, any equity you have in your primary residence will not count against the Medicaid asset limit. So you could protect your assets by putting them toward your mortgage or even upgrading your home. But the lookback period also applies here, and in some states, the government may claim part of your home equity to recoup care costs after your death.

Trusts: You mentioned having a trust already set up, but there is a type of trust designed specifically for this situation. Putting your money into a Medicaid asset protection trust (MAPT) effectively hands it over to someone else, so it is technically no longer yours and does not count against your Medicaid eligibility. Just remember that the handoff must be completed five years before you go on Medicaid.

As you may notice, the common problem with these methods is that they drastically restrict what you can do with your assets. And by taking away your financial independence, to some extent they leave you poor in reality – not just on paper. (And if you need help executing one of these strategies, consider matching with a financial advisor. )

That may be preferable to the alternatives, but it depends on another variable: Why do you want to protect your assets from long-term care expenses, including nursing home costs, in the first place?

The options discussed above often make the most sense as estate planning measures. If you do not expect to use your assets yourself and are instead concerned about preserving them for your heirs, perhaps it does not matter if they get locked up in a trust, an annuity or your home equity.

But there is still an elephant in the room. Remember that these asset-protection techniques will ultimately leave you with cheap healthcare and long-term care. And that may impact your access to care and its overall quality.

Ask yourself this: What are you trying to "protect" your money for? Is it worth all the hoop-jumping and the risk of mediocre care in your twilight years? It may be if you want to leave a sizable inheritance behind or save assets for your spouse. (And if you need more help with estate planning, consider working with a financial advisor. )

A middle-ground solution be the best course of action. Something like LTC insurance or an "aging-in-place" strategy may not completely protect your assets from long-term care costs. But such an option could reduce those costs while still providing the care that preserves your quality of life.

Remember, the point of saving money is ultimately for your well-being and that of your loved ones – not just to save it for its own sake.