My 74-year-old husband will likely go into a nursing home within the next 5 years or so — is it immoral to put our assets into a trust ASAP and protect them from the US government?

The problem with long-term care

It’s a big myth that Medicare enrollees are entitled to coverage for long-term care. Medicare will only pay for care that’s medical in nature. If you have surgery and need to recover for a few weeks in a skilled nursing facility, that’s covered under Medicare Part A.

But long-term care is often not medical in nature, but rather, custodial – meaning, pertaining to everyday activities. And while Medicare will pay for you to recover from an injury or have and recuperate from surgery, it won’t pay for someone to help you with everyday living (things like bathing, dressing, and cooking) not related to a medical issue. (And no, aging is not considered a medical issue.)

It’s for this reason that so many older Americans end up with a financial dilemma when they realize they can’t afford long-term care. And while long-term care insurance could help cover those costs, it can be prohibitively expensive.

The American Association for Long-Term Care Insurance puts the average cost of a plan first purchased at age 65 at $1,700 a year for men and $2,700 a year for women for up to $165,000 in benefits. And while it's possible to lock in lower annual premiums by putting coverage in place at a younger age, you're then paying those premiums for a longer period of time. So that’s not a great solution.

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Using Medicaid to pay for long-term care

While Medicare typically won’t pay for long-term care, Medicaid often will. Non-profit KFF estimates that in 2020, 4.2 million people used Medicaid long-term services and supports (LTSS) delivered in home and community settings and 1.6 million used LTSS delivered in institutional settings. Medicaid covered over half of all LTSS spending in the U.S. that year.

The problem, though, is qualifying for Medicaid.

Eligibility for Medicaid varies by state, but generally your income and assets need to be below a certain limit to get approved. Certain types of assets and income are exempt from calculation. If your countable income and assets exceed the limit, a state may still find you eligible if you "spend down" the excess.

Another way to meet the asset limit is to strategically move assets into a trust so they’re not counted as income. Specifically, you'll want to look at a Medicaid Asset Protection Trust. As the name implies, it's an irrevocable trust designed to exclude assets from being counted toward Medicaid eligibility. If a trust of this nature is established, and assets are transferred into it five years before your loved one applies for Medicaid's long-term care benefits, those assets will not impact their ability to qualify.

But while establishing one of these trusts is perfectly legal, the question is, is it immoral? And the answer is, not necessarily.

The whole reason these trusts exist is because far too many seniors would be trapped without them. Also, think about it this way. Your loved one worked hard to accumulate some assets. Does your family deserve to lose out on them because the need for long-term care arose and you can’t reasonably pay for it?

Furthermore, say you decide not to create a trust and you deplete your loved one’s assets paying for care for a period of time. At that point, your loved one might qualify for Medicaid anyway.

All told, there’s a huge gap in coverage for long-term care, and that’s something lawmakers may need to address given an increasingly aging population. But for now, you shouldn’t feel overly guilty for exploring a legal loophole designed to help families of modest means afford the long-term care they need.