6 Ways to Protect Parents’ Assets From Nursing Home Costs

6 Ways to Protect Parents’ Assets From Nursing Home Costs

Do you worry about the impact of nursing home costs on your parents’ financial security? You’re not alone. It’s a stressful reality many of us face as our loved ones age. Fortunately, there are ways to protect their assets, maintaining not only their wealth but also their dignity and quality of life.

In this post, you will learn why safeguarding your parents’ assets from nursing home costs is so vital. You will also explore multiple strategies to shield your parents’ assets from the towering costs of nursing home care. Finally, you will uncover how to get the professional help you need in safeguarding your parent’s hard-earned legacy.

Why Do You Need to Protect Parents’ Assets From Nursing Home Costs?

Taking steps to protect your parents’ assets from nursing home costs is more than just a financial decision—it’s about honoring their life’s work, ensuring their comfort, and providing them the quality care they deserve. Below, you will dive into why this planning is so essential and how it impacts various facets of your parents’ lives:

Preserve Your Parents’ Hard-Earned Wealth: It’s a noble effort to help protect your parents’ assets from nursing home costs. After all, they’ve worked hard their whole life to accumulate them. They conscientiously saved, planned, and invested for years, intending to pass down a legacy.

Prevent a Rapid Drain of Resources: Nursing home care can be incredibly expensive. Without careful planning, your parents’ assets could be rapidly drained to cover these costs, putting their financial stability at risk. You want to ensure that your parents can afford the care they need without losing everything they’ve built.

Maintain Control Over Their Lives: Helping your parents protect their assets isn’t just about the money. It’s about preserving their dignity and control over their own lives. By safeguarding their assets, you’re helping to ensure that they can make their own choices about the care they receive. They deserve to live their remaining years in comfort, not anxiety.

Ensure Continued Quality Care: Protecting your parents’ assets from nursing home costs can also ensure that they continue to receive quality care. Without appropriate financial planning, the high cost of nursing care may force them into lower-quality facilities. By planning now, you can help ensure they have access to the best care possible.

How to Protect Parents’ Assets From Nursing Home Costs

As the costs of long-term care rise, safeguarding your parents’ assets becomes an essential part of your family’s financial planning. With the right understanding and strategy, it’s possible to navigate this complex terrain effectively. Below, you will explore a range of solutions to help ensure your parents’ assets are preserved and their future is secure.

1) Understand Medicaid and the Look-Back Rule Ahead of Time

You need to be aware of Medicaid and the look-back rule. These two concepts can play a vital role in protecting your parents’ assets from nursing home costs.

Medicaid is a government program that can help cover long-term care costs, like nursing homes. However, to qualify, your parents need to meet certain income and asset limits. If their assets are above these limits, they won’t qualify for Medicaid’s long-term care coverage.

This is where the Medicaid Look-Back Rule comes into play. The rule means that Medicaid can look at asset transfers your parents made up to five years before applying for benefits. If they transferred assets for less than fair market value during this period, they might not be qualified for Medicaid, which could leave them covering nursing home costs out of pocket.

Understanding these rules can help you make smart decisions. For example, if you know your parents might need long-term care in the future, you could start moving assets more than five years before applying for Medicaid. That way, those transfers fall outside the look-back period and won’t affect Medicaid eligibility.

2) Purchase Long-Term Care Insurance

When your parents grow older, they might need help with everyday tasks. It’s during these times that long-term care insurance can become a lifeline. This kind of insurance can pay for care services that health insurance, Medicare, or Medicaid typically may not cover. It also protects your parents’ hard-earned assets from being drained by high nursing home costs.

Think of long-term care insurance as a safety net. You purchase a policy, pay the premiums, and when your parents need assistance, the policy kicks in. The insurance company then begins to pay for services like nursing home care, home health care, or assisted living.

You’re probably aware that nursing home care doesn’t come cheap. Without insurance, you’d have to pay those costs out of pocket. This could mean selling your parents’ home, dipping into savings, or even liquidating assets. Long-term care insurance helps safeguard these assets, leaving a legacy for your parents to pass down.

Getting long-term care insurance early is beneficial. The younger and healthier your parents are when you get the policy, the lower the premiums tend to be. And remember, it’s a gift that can keep on giving – not just to your parents, but to your entire family, preserving assets for future generations.

Note: Long-term care insurance is a significant investment and can be expensive, requiring careful evaluation. It’s crucial to contact a knowledgeable financial advisor. They can help you navigate its complexities and assess its feasibility based on your parents’ financial situation. While this insurance can protect your parents’ assets from nursing home costs, the premiums need to be affordable and sustainable. We often recommend building a Diverse Investment Portfolio (see below) as a better alternative for most of our clients.

3) Build a Diverse Investment Portfolio

One of the primary concerns surrounding long-term care insurance is its cost and the uncertainty of needing the coverage. While it offers a safety net, there’s no guarantee that the premiums paid into the policy will be utilized, depending on the care your parents might need in the future.

For families who are skeptical about the long-term value of such insurance, building a robust and diverse investment portfolio can be an alternative or complementary approach. Here’s why:

Flexibility of Use: Unlike dedicated insurance premiums, funds in an investment portfolio can be used for any purpose. If your parents never need long-term care, the money is not “locked” into a specific use and can be reallocated to address other financial needs or desires.

Potential for Growth: With the right investment strategy, the portfolio can grow significantly over time, potentially outpacing the increasing costs of long-term care. Moreover, the compounded growth of investments can lead to a sizable fund available for any eventualities, including care needs.

Legacy and Inheritance: Even if portions of the portfolio are used for long-term care, the remaining assets can be left as an inheritance. Plus, the assets are typically more liquid and flexible than an insurance payout, providing beneficiaries with a broader range of options.

Diversification and Risk Management: A well-diversified portfolio spreads risk across various assets, ensuring that the family’s wealth isn’t overly exposed to any single economic factor or market downturn. Over the long term, this can offer a level of financial stability.

However, building and managing an investment portfolio requires knowledge, research, and regular oversight. It’s essential to consult with financial advisors who can provide guidance tailored to your family’s goals, risk tolerance, and investment horizon. Regularly reviewing and adjusting the portfolio ensures it stays aligned with the family’s evolving needs and the changing market environment.

4) Buy a Medicaid-Compliant Annuity

A Medicaid-compliant annuity can help safeguard your parents’ assets from nursing home costs, especially when one parent is healthier. This financial tool converts a lump sum into regular income for the healthier parent. It’s a way of spending down assets, which reduces the income that Medicaid considers for eligibility. This strategy can be particularly useful during sudden Medicaid planning situations. However, seeking professional financial advice first is still crucial.

5) Gift Assets Without Incurring Penalties

Gifting assets without penalties can be a key strategy in protecting your parents’ assets from nursing home costs. This involves understanding Medicaid’s look-back period and certain exemptions that allow assets to be transferred without incurring penalties.

One significant exemption to the look-back rule is the Community Spouse Resource Allowance (CSRA). If one of your parents is applying for Medicaid and the other is not, they can transfer assets to the non-applying spouse. This amount can change yearly, and it can vary depending on your state’s rules.

States are classified as either 50% or 100% states, indicating that the spouse who is not applying for Medicaid can retain either 50% or 100% of the couple’s assets, up to the maximum permissible limit. Assets exceeding this threshold must be “spent down” in order to meet Medicaid’s eligibility criteria.

Transferring assets to a disabled child is another exception. If your parents have a disabled child, they can transfer assets or establish a trust for that child without penalty. In addition, if your parents’ home is jointly owned with a sibling who has lived in the house for at least a year before one parent enters a nursing home, the house can be transferred to that sibling without penalties.

If one of your parents’ adult children has been living with them and providing care for at least two years, the Child Caregiver Exemption allows the home to be transferred to that child without penalties. Finally, It is not deemed a violation to settle debts within the look-back period. So, paying off a mortgage or other loans can convert liquid assets into exempt assets.

6) Create An Irrevocable Trust

If your parents’ assets are on your mind, forming an irrevocable trust can be a game-changer. It’s a legal tool that can help protect their wealth from nursing home costs. An irrevocable trust is like a safe where your parents can store their assets. Once assets are placed into the trust, they generally can’t take them out or change the trust terms. Ultimately the trust owns the assets, not your parents.

Since the trust owns the assets and not your parents, those assets typically don’t count towards Medicaid’s limits. That said, the look-back rule still needs to be accounted for. Medicaid looks at asset transfers made within five years before applying. If your parents moved assets into the trust during this time, they could be penalized, delaying their Medicaid eligibility.

For this strategy to be beneficial, you need to plan ahead. If you think your parents might need Medicaid in the future, set up the irrevocable trust and transfer assets into it more than five years before applying. Don’t rush into this major decision. Speak to a financial advisor before deciding if an irrevocable trust is a worthwhile move.

Get Help Protecting Your Parents’ Assets From Nursing Home Costs

At Fischer Investment Strategies, we understand that safeguarding your parents’ assets from nursing home costs goes beyond dollars and cents—it’s about respect, dignity, and the preservation of a legacy. It’s about ensuring they receive the quality care they deserve without the risk of draining the resources they’ve spent a lifetime building up.

We believe in empowering you with the knowledge to make informed decisions. By understanding how to utilize Medicaid, long-term care insurance, Medicaid-compliant annuities, penalty-free gifts, and irrevocable trusts, you can help protect your parents’ wealth.

Our team of financial advisors is here to help you navigate these strategies and more. We will guide you through every step, ensuring that your decisions align with your family’s needs and your parents’ long-term goals.

Don’t wait for nursing home costs to threaten your parents’ hard-earned wealth. You can call us directly at our Westlake office at (805) 418-7686, or our San Clemente office at (949) 433-7768. Feel free to also schedule a complimentary consultation for estate planning at a time that works best for you.


This commentary reflects the personal opinions, viewpoints and analyses of the Fischer Investment Strategies, LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Fischer Investment Strategies, LLC or performance returns of any Fischer Investment Strategies, LLC client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Fischer Investment Strategies, LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

Financial Advisor at Fischer Investment Strategies | Website | + posts

Ted Fischer is a Fee-Only Certified Financial Planner® & fiduciary, and the founder of Fischer Investment Strategies.

Drawing from more than 25 years of experience in the financial services industry, Ted's expertise includes retirement planning, investment analysis, tax planning, estate planning, and insurance.

Ted has an extensive academic background. He received his Certified Financial Planning (CFP®) designation from UCLA in 2011. He became a Qualified Plan Financial Consultant (QPFC®) and an Accredited Investment Fiduciary (AIF®). Ted has a Bachelor of Science in Marketing, with a minor in Finance, from San Diego State University.


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