I had a useful meeting with an Elder Law attorney yesterday, so let me sum up what I know.

If you don't want to spend all your savings on your spouse's care, it is worth seeing an elder law attorney who specializes in Medicaid at least 5 years before your spouse needs nursing home care, particularly if your spouse does not have long term care insurance (or might run out).  The rules are very complex and vary a lot from state to state.

Medicare does not pay for nursing homes beyond a few months of rehab.  Medicaid will help with the cost of a nursing home, but only after most of the savings of both spouses have been spent, which is easy to do when a nursing home costs $5,000 to $10,000 a month and some people with dementia live in a nursing home for many years.  My husband's 100 year old aunt has been in a nursing home for two years and is doing well--in a wheelchair but still mostly competent and enjoying going out to a restaurant for lunch.  Her long term care insurance lasts 4 years, of which she has used close to two.  When that gets close to running out she will have to move to a nursing home that takes Medicaid, but spending down her savings and applying for Medicaid should be fairly straightforward.

It isn't so straightforward if you are married.  Medicare treats the two spouses as a unit--it doesn't matter if assets are in one name only (even a prenuptial agreement won't allow one spouse to keep separate funds).  The well spouse is allowed to keep the house and its contents, one car, and half of the couples savings up to around $100,000.  All the rest of the couples's savings must be spent on nursing home costs, including in many states the well spouse's retirement savings.  I have a lot more than $100,000 in my IRA and 403b retirement savings accounts.  If I didn't live in South Carolina, I would have to pay the early withdrawal penalty (I'm only 56 so I could easily be under retirement age when I needed the money) and spend down those funds on my husband's care before we could get Medicaid help with the cost of a nursing home. 

What about my retirement years after he is gone or money I had hoped to pass on to my children?  About the only way to keep more than the allowed amount for myself is divorce.  I do have some options for my children if I do it now.  Medicaid looks back and counts any money given away up to 5 years before the person applies for Medicaid.  I can give money to my children or set up an irrevocable trust for them, because I am at least 5 years away from needing help, but if I did that within 5 years, Medicaid would not pay for a number of months equivalent to what was given away.

Be careful also if you expect to inherit any money.  If my mother dies before my husband, the inheritance I get from her must be spent on his care before he would be eligible for Medicaid.  There may be a way to fill out legal forms to refuse the inheritance now, so it goes to my kids instead.  But I have to do that before the five year look-back or Medicaid would count it as a gift.