Irrevocable Living Trusts as a Solution to Long-term Care Costs

Posted on January 20, 2016

by Margie Connolly

Margaret McCullough Connolly, Sugar Land Attorney and Counselor at Law

If you, or a family member, does not qualify for long term care insurance but discover the need for long term or nursing home care for the individual, how can you protect your family’s assets from being depleted by paying for long term care?

If you want to shield your estate from the costs of a nursing home or other potential creditor, you may form and fund an irrevocable trust with those assets or property.   This involves naming someone else to act as trustee of the property. Ownership of the property is transferred to the Trust, and the Trustee is obligated to protect and preserve the assets, per instructions contained in the Trust, and to pay out income from the Trust to Beneficiaries you designate in the Trust. Because you no longer own the assets, they cannot be used to pay costs of nursing home care, and cannot be attached by creditors to satisfy your debts.

The catch is, for this type of protection, the trust must be irrevocable – you can’t change your mind and take your property back after you move it into the trust’s ownership. Your ownership of your property is severed so a nursing home can’t expect you to use these assets to pay for your care — they’re not yours any longer.

Moving your property into such a trust allows you to qualify for Medicaid. When you make the transfer of property, you effectively deplete your estate of disposable assets. This doesn’t have to leave you bereft — the trust can provide you with income produced from the assets it holds. (*Also subject to Medicaid Limits.) But – trust income can be paid as reimbursement of family members, for payments made by them for your care.

The other catch is that Medicaid has a five-year “look back” period that can put you in a bit of a bind if you’ve moved your countable assets into an irrevocable trust and can’t get them back. You cannot qualify for Medicaid for five (5) years after you transfer your property into the trust. If you transfer assets, then need long-term care four years and 11 months later, you’re within this look-back period — and you may not be looking at just a month of ineligibility until you reach five years. How long you’re ineligible depends on the value of the property you placed in trust and the average monthly cost of nursing home care in your state. If the average monthly cost is $5,000, the government divides the value of your transferred property by this number. If you moved $100,000 in assets, this comes out to 20, so you’d be ineligible for Medicaid for 20 months — almost two years. Meanwhile, you can’t get your property back to pay for your care during this time.

Bottom line – It’s a good idea to consult with a lawyer to explore all your options before you take such a permanent step.

This document does not constitute legal advice. It is to be used for descriptive purposes only. Please seek the advice of a competent lawyer in your state.