Living trusts & nursing homes: How to protect your assets

Only a properly constructed irrevocable trust can protect your assets; revocable living trusts won’t provide any asset protection.

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Elissa SuhSenior Editor & Disability Insurance ExpertElissa Suh is a disability insurance expert and a former senior editor at Policygenius, where she also covered wills, trusts, and advance planning. Her work has appeared in MarketWatch, CNBC, PBS, Inverse, The Philadelphia Inquirer, and more.

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A living trust can protect assets from a nursing home only if the trust is irrevocable. An irrevocable trust can provide asset protection because with this type of trust, the grantor — the trust creator — doesn’t own assets in the trust from a legal standpoint. 

On the other hand, a grantor exercises ownership over a revocable trust since they can revoke or amend the trust at their discretion. They own the trust property, so eventually a creditor — like a nursing home or Medicaid can seek repayment by forcing a sale of the trust assets.

Proper estate planning with an irrevocable Medicaid trust can protect your assets and your estate and help you qualify for the program’s benefits, which include nursing home care.

Key takeaways

  • Irrevocable trust assets are protected from a nursing home since you no longer retain ownership over them

  • Revocable living trust assets aren’t protected from a nursing home since you own them outright

  • Planning in advance, such as with a Medicaid trust, can help you cover the cost of a nursing home and protect assets from future estate recovery

Can a nursing home take all your assets?

The cost of long-term care in a nursing home can be very expensive, reaching upwards of $10,000 per month. If you die with unpaid nursing home debt, the facility becomes your creditor and as such they can try to collect on your debts. (The executor or administrator who handles your affairs after you’ve died will be responsible for sorting everything out.)

A strong estate plan starts with life insurance

If you get long-term care through Medicaid, then the state is entitled to recoup these costs after you’ve passed away through what’s known as Medicaid Estate Recovery. The state only seeks repayment in certain circumstances and not for all Medicaid recipients. When successful though, it can potentially diminish an inheritance that you planned to leave behind for loved ones. Fortunately there are ways to prevent this from happening, like through a well-made irrevocable trust

How to protect your assets with a trust

A revocable living trust can help you pass assets to your beneficiaries and avoid probate, which makes it a useful part of an estate plan. However, creating this type of trust won’t protect your property from a nursing home since you still retain ownership over it. You can freely move assets in and out of a revocable trust.

Asset protection is only available with an irrevocable trust, which you can’t change or dissolve except under narrow circumstances. (An irrevocable trust you set up during your lifetime is called an irrevocable living trust.) In addition to avoiding probate, these trusts have further benefits that aren’t offered through a revocable trust, like reducing estate tax. Due to the complexity of an irrevocable trust, you will need to hire an estate planning attorney to create one. There are a number of different types of irrevocable trusts, including one that is specifically intended to protect assets from Medicaid. (More on that next.)

Learn more about a revocable vs. irrevocable trust.

Using a Medicaid asset protection trust

A Medicaid trust (also known as a Medicaid asset protection trust or MAPT) protects your assets from Medicaid  — and other creditors in general — after you’ve passed away and helps you meet Medicaid eligibility requirements during your lifetime. 

To use a Medicaid trust, you can fund the trust with assets you want to protect or “hide” from Medicaid. The assets must be transferred into the trust for at least 60 days (five years) before they can be protected. 

Medicaid can pay for nursing home costs, but it is only available to people with limited means. Every state sets a limit for an applicant’s income and assets, which you can learn more about in this state-by-state guide to Medicaid. If you make more money and own more assets than the allowable limits, then opening a MAPT and transferring your assets into it can help you qualify for the Medicaid benefits. 

Keep in mind that you must still make the transfer at least five years in advance of applying. If you transfer assets and then immediately pass away or apply for Medicaid, then your assets will be available towards estate recovery or the Medicaid resource limit, since the “look-back” period hasn’t passed. If you have more questions about Medicaid planning, you can consult with an elder law attorney who knows the details in your state. 

Medicaid is not the same as Medicare, which is a government-based health insurance available to all seniors and that doesn’t cover long-term care.

If you’re not looking to qualify for Medicaid benefits, you may still benefit from a general asset protection trust as part of your estate plan. Learn more about different types of trusts.

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