Have Your Cake, Keep Your Savings

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You’ve worked hard. You’ve saved diligently. You’ve paid into Social Security and earned your Medicare benefits. So when you need long-term care, you should be covered—right?

Unfortunately, not entirely.

While Medicare covers some medical expenses, it typically doesn’t pay for long-term custodial care—the care that helps with daily living activities like bathing, dressing, cooking, or managing medications. If you’re faced with a disability or a progressive illness like Alzheimer’s, these are the services you’re most likely to need.

The Real Cost of Care

Cake and savings

Nursing home care now averages over $70,000 annually, which keeps rising. If you don’t have long-term care insurance or a plan, that cost could come straight out of your savings.

Medicare only covers up to 100 days of skilled nursing care under specific conditions. Medicaid can help with custodial care, but qualifying isn’t simple. You must have less than $2,000 in countable assets to be eligible. And if you give away assets within five years of applying, Medicaid will impose a penalty period.

So what can you do? Giving away all your assets now—just in case you need care five years later—feels risky and impractical.

There’s a Better Option

An Irrevocable Income Only Trust (IIOT) can provide a smart solution. This type of trust allows you to transfer assets out of your name (protecting them for Medicaid purposes) while still receiving income generated by those assets during your lifetime.

You retain financial flexibility—you can use the income for travel, home repairs, or everyday needs. After five years, the trust’s assets are no longer considered “countable” for Medicaid eligibility purposes.

If you eventually require care, Medicaid may require that the income from the trust go toward your share of the cost—but your principal remains protected.

A Tale of Two Paths

Let’s meet Margaret and Beverly—two women in their late 60s, both widowed and enjoying retirement. Each has:

  • A modest home
  • $300,000 in savings
  • Social Security and a small pension
  • A family history of degenerative illness

Margaret works with an elder law attorney and sets up an Irrevocable Income Only Trust. She transfers her savings into the trust but continues to receive income from it.

Beverly decides to wait.

Five years later, both women move into a nursing home. When it’s time to apply for Medicaid:

  • Margaret qualifies because her trust assets don’t count against her. Medicaid covers her care, and only the trust income goes toward her share of the cost.
  • Beverly is denied because her $300,000 in savings counts as assets. She must spend nearly all of it before Medicaid will step in.

In the end, Margaret preserves her legacy. Beverly spends hers on care.

Planning Matters

With thoughtful planning, you don’t have to choose between financial security and long-term care. You really can keep your cake—and eat it too.

The McGee Law Firm can help you explore whether an Irrevocable Income Only Trust or another strategy is right for your situation. The key is to plan ahead—before you need care.

From the desk of Attorney Brandon McGee

Brandon McGee
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