Imagine receiving a phone call at 2 a.m. saying your 78-year-old father has fallen and can't get up. After a hospital stay, the doctor recommends skilled nursing care. Suddenly, you're facing a financial reality that could wipe out everything your family has worked decades to build.
Long-term care costs can exceed $60,000 annually for skilled nursing facility care. These expenses can quickly deplete a lifetime of savings and threaten the legacy you hoped to leave your children. With help from our Texas Estate Planning Lawyers, you can integrate long-term care considerations into your comprehensive estate plan before a crisis occurs.
Why Traditional Estate Planning Falls Short for Long-Term Care
Most estate plans focus on death. That's the problem. Your biggest financial threat might happen while you're still breathing.
Consider the fictional case of Robert and Margaret Thompson, a Texarkana couple who completed their estate planning five years ago. They got a revocable living trust, updated wills, and felt bulletproof. Their $400,000 estate was set to pass to their three kids.
Then, Margaret got Alzheimer's. The nursing home costs $5,800 monthly. Their trust was rendered useless. Three years later, half their life savings vanished into medical bills. The Thompsons learned the hard way that traditional estate planning might protect assets after death, but it ignores the potentially high costs of long-term care.
Understanding Texas Medicaid and Long-Term Care Coverage
Texas Medicaid can pay for skilled nursing home costs in some cases. The program determines eligibility by categorizing assets as countable or non-countable resources. Non-countable resources do not affect eligibility, while countable resources above certain thresholds prevent qualification for benefits.
A single person can own only $2,000 in countable assets and still qualify for Texas Medicaid in 2025. Married couples have much more breathing room. The Community Spouse Resource Allowance (CSRA) allows the healthy spouse to keep up to $154,140 while the other spouse receives long-term care benefits.
Non-Countable Assets Under Texas Medicaid
Several types of assets don't count toward Medicaid eligibility limits.
- The family home remains non-countable up to $713,000 in equity value for 2025.
- Personal belongings, household goods, and one vehicle per person also receive protection.
- Individual Retirement Accounts (IRAs) and other qualified retirement accounts for individuals over 73 who take required minimum distributions (RMDs) are now considered non-countable assets.
This recent policy change has transformed Medicaid planning strategies. Previously, families believed they had to spend down retirement accounts before qualifying for benefits. Now, proper planning can protect these assets while still achieving Medicaid eligibility.
The Five-Year Lookback Period
Texas Medicaid examines all asset transfers made within five years of applying for benefits. Transfers made for less than fair market value can result in penalty periods that delay benefit eligibility. This lookback period requires families to plan well before needing long-term care.
Strategic Asset Protection Tools for Long-Term Care Planning
Protecting your estate from long-term care costs requires specific tools designed to work within Medicaid rules. To be effective, these strategies must be implemented before health crises occur.
Asset Protection Trusts
You give up legal ownership with asset protection trusts, but the trust is shielded from Medicaid's eligibility requirements. These irrevocable trusts can hold real estate, investment accounts, and other valuable property. The trust must be carefully structured to avoid triggering Medicaid penalties.
For example, say “Tyler” moved his $250,000 investment portfolio into an asset protection trust in 2020. He kept receiving income but gave up ownership. When James needed nursing home care in 2025, those trust assets didn't count toward his Medicaid eligibility. His kids got the investments, and James got long-term care benefits.
Lady Bird Deeds for Home Protection
The Enhanced Life Estate Deed, commonly called a Lady Bird Deed, offers an excellent tool for protecting the family home. This document lets you control your property completely during your lifetime while naming beneficiaries to inherit immediately when you die.
Lady Bird Deeds serve multiple purposes in long-term care planning. They protect the home from Medicaid Estate Recovery Program (MERP) claims, avoid probate, and can be created by someone with power of attorney if the homeowner becomes incapacitated. You can still sell, lease, or mortgage the property without asking beneficiaries for permission.
Long-Term Care Insurance Integration
Long-term care insurance can fill gaps in asset protection strategies. However, these policies work best when coordinated with other planning tools rather than serving as standalone solutions.
Modern hybrid policies combine life insurance with long-term care benefits. If you never need long-term care, your beneficiaries receive the death benefit. If and when you do need care, the policy provides benefits for nursing home or home care costs. These policies offer more certainty about benefit payment than traditional long-term care insurance.
Medicaid Estate Recovery and Protection Strategies
When someone receives Texas Medicaid benefits, the state can seek reimbursement from their estate after death through the Medicaid Estate Recovery Program (MERP).
How MERP Works in Texas
After a Medicaid beneficiary dies, their family typically receives two letters from HMS, the state's debt collection contractor.
- The first provides notice of intent to file a claim against the estate.
- The second specifies the amount owed for benefits received.
Without proper planning, families must sell the home and other estate assets to satisfy MERP claims before distributing any inheritance. However, MERP claims can only be made against assets that pass through probate. This limitation creates opportunities for protection through proper estate planning.
Available MERP Exemptions
The Deficit Reduction Act provides several conditional exemptions from estate recovery.
MERP cannot pursue claims when the Medicaid beneficiary is survived by a spouse, a child under 21, or a disabled child of any age. A child who lived in the home for at least two years before the parent's nursing home admission and provided care that delayed institutionalization may also qualify for exemption.
Proactive Protection
Smart Medicaid planning often beats hoping for exemptions. Lady Bird Deeds remove the home from probate, eliminating MERP exposure entirely. Asset protection trusts similarly shield trust assets from recovery claims.
Coordinating Long-Term Care Planning with Traditional Estate Planning
Long-term care planning can't exist in isolation. It must integrate seamlessly with other estate planning goals without creating conflicts or gaps.
Revocable Living Trusts and Long-Term Care
Standard revocable living trusts offer no protection from long-term care costs because you retain ownership and control of trust assets. However, these trusts help avoid probate and can be modified to include long-term care provisions.
Powers of Attorney Considerations
Your financial power of attorney needs specific language for Medicaid planning and asset protection. Standard forms typically lack the detailed powers necessary for effective long-term care planning.
The document should explicitly authorize your agent to establish trusts, make gifts, create Lady Bird Deeds, and implement other asset protection strategies. Without these provisions, your agent might be helpless in protecting your assets if you become incapacitated.
Special Needs Planning Integration
Families with disabled members face unique challenges in long-term care planning. Traditional strategies that work for typical families may disqualify individuals from crucial government benefits.
Special needs trusts can complement long-term care planning and protect assets for disabled family members and other beneficiaries. However, these trusts require precision to avoid benefit disqualification.
More Advanced Strategies for Wealthy Families
Families with substantial assets may need more sophisticated approaches to long-term care planning. These strategies often combine multiple tools to maximize protection while preserving flexibility.
Charitable Remainder Trusts
Charitable remainder trusts can provide income during your lifetime while removing assets from your estate for both tax and Medicaid purposes. These trusts work particularly well for families with charitable goals who also want long-term care protection.
Family Limited Partnerships
Family limited partnerships can be structured to provide long-term care protection while facilitating wealth transfer to younger generations. Discounted valuations can reduce gift and estate taxes while potentially providing Medicaid protection.
Qualified Personal Residence Trusts
For families with valuable homes, qualified personal residence trusts (QPRTs) can remove the property from the estate while allowing for continued occupancy. These trusts require careful timing and may not be suitable for all families.
Creating Your Comprehensive Long-Term Care Estate Plan
Developing an effective long-term care estate plan requires a systematic approach that addresses your unique circumstances and goals. The process should begin with a thorough assessment of your current assets, health status, and family situation.
Asset Inventory
Make a list of everything you own and determine what Medicaid would count against you. Consider your family health history and the likelihood you will need long-term care. Evaluate existing insurance coverage and estate planning documents to identify gaps.
Asset Protection
Next, develop a strategy using multiple tools. This might include establishing an asset protection trust, creating a Lady Bird Deed, updating powers of attorney, and purchasing appropriate insurance coverage. The specific combination depends on your assets, goals, and risk tolerance.
Proactive Planning
Do this work while you're still healthy and mentally sharp. Many long-term care planning strategies require advance implementation to be effective. Waiting until a health crisis occurs severely limits available options.
Regular Updates
Review and update your plan regularly. Laws change. Family situations evolve. New opportunities emerge. Annual check-ups with qualified legal counsel keep your plan current and effective.
