Like many Americans, you probably want to do everything you can to foster your family’s financial security. Whether you want to leave behind an inheritance for your loved ones or simply avoid causing unnecessary hardships for them, planning ahead is essential. Long-term care is one of the biggest monetary setbacks people face as they age. With nursing homes costs averaging $100,000 per year or more, care planning is one of the most effective ways to protect your family against unexpected expenses.
Medicaid was designed to help cover the costs of healthcare, but the program has strict eligibility restrictions in place. To determine who is eligible and who isn’t, the program calculates applicants’ cash and valuable belongings. With that being the case, the very assets you hope to leave your family could interfere with your eligibility, forcing you to sell them to cover the costs of long-term care. The Homestead Exemption can protect your home, and your family, against those issues.
Understanding the Homestead Exemption
At this point, you may be asking, “Exactly what is the Homestead Exemption?” In short, it’s a rule that allows you to keep your primary residence without including it in your countable assets. That means the value of your home won’t automatically disqualify you from receiving Medicaid benefits. Per Medicaid’s regulations, you must have less than $2,000 in countable assets to quality. As such, simply owning a home leaves quite a few people ineligible unless they apply for the Homestead Exemption.
Important Considerations
Now, we’ll delve a bit deeper into the Homestead Exemption. By federal law, up to $688,000 in home equity can be protected on last report, but this amount is adjusted annually to account for inflation. Certain states have their own limits in place. That can also affect your eligibility because Medicaid is a joint effort between federal and state governments.
It’s important to note that if you’re married, Medicaid’s rules work a bit differently. In that case, if your spouse continues to live in the home, it’s protected no matter how much it’s worth. Additionally, if you and your spouse move into a long-term care facility, you may be required to sell your home after a certain period of time to continue receiving Medicaid benefits. Furthermore, even if your home is protected under the Homestead Exemption, that only holds true while you’re alive. When you pass away, your state’s Medicaid program may be able to place a claim against the property to recover the benefits they paid for your care.
Strategic Planning Considerations
Though the Homestead Exemption can protect your home, strategic planning is the key to making the most of this exception. Applying for this exemption should be part of a diversified plan. Since it only applies while you or your spouse is living in the home, it may be wise to modify the house to allow for aging in place as long as possible.
If you decide that transferring the house and property to your loved ones, or selling the house and giving them the proceeds, might be a better option, timing is critical. Medicaid has a look-back period of five years. That means they can investigate your transactions from up to five years before you apply for benefits. As such, either of those steps would need to be completed more than five years before you apply. Otherwise, they could interfere with your Medicaid eligibility.
Protecting Your Home and Family
Long-term care can be a major expense, and it can cause significant financial hardships for you and your family. Medicaid may help cover the costs, but the program has very strict eligibility requirements. Owning valuable assets can disqualify you from receiving benefits. The Homestead Exemption can protect your home, but it’s important to plan ahead for your long-term care needs and combine this exception with other strategies to fully safeguard your family and financial assets.