Does an Irrevocable Trust Protect Assets from Nursing Home Costs?


The national average cost of long-term care in the U.S. is $225 a day or $6,844 per month for a semi-private room in a nursing home, according to the U.S. Department of Health and Human Services. The high costs charged by nursing homes can make it difficult for retired adults to pay for their long-term care.

Many adults worry that the assets they put aside for their loved ones will be taken to pay for nursing home costs. The truth is that certain assets can be taken to pay a nursing home. However, with proper planning, it is possible to cover nursing home costs without depleting assets in an irrevocable trust.

What Is Irrevocable Trust?

An irrevocable trust is a type of trust with terms that cannot be amended, modified or terminated without the permission of the trustor’s named beneficiaries. This differs from a revocable trust which can be modified or cancelled at any time by the trustor. Irrevocable trusts offer several major perks, such as asset protection from future lawsuits and creditors.

There are two main types of irrevocable trusts – a living trust which is created when the trustor is alive and a testamentary trust which is created upon a person’s death. A testamentary trust is funded from the deceased’s estate based on the terms of the will. An irrevocable trust can deliver many benefits, such as estate tax exemptions and the prevention of asset misuse by beneficiaries.

Medicaid and Your Assets

Medicaid is primarily used to pay for nursing home care. However, Medicaid eligibility is based on a person’s income. If you do not have adequate funds to cover the cost of long-term care, Medicaid will look at your assets. In 2024, you must earn less than $2,829 per month in income and have less than $2,000 in total countable assets to be eligible. Not all assets are counted when determining Medicaid eligibility.

Countable assets include:

  • Bank accounts
  • Stocks and bonds
  • Certificates of deposit
  • Life insurance policies
  • Property (additional real estate not for rent)
  • Vehicles

Non-countable assets include:

  • IRAs or 401(k)s
  • Life insurance policies with a cash value of up to $2,500
  • Pre-paid funeral and burial expenses
  • Home improvements
  • Assets that you made a “good faith effort” to sell but did not
  • Property (primary residence and rental properties)
  • Personal property (e.g. furniture, art, jewelry)

To be eligible for Medicaid you must have minimal income and few assets. Medicaid will generally look back at your financial records for five years to determine if you sold any major assets in order to qualify. This is referred to as the Medicaid look-back period and any assets that fall under this look-back period could result in a delay when attempting to get into a nursing home. To avoid loss assets and nursing home delays, it is important to start planning in advance, especially if you will require Medicaid to pay for nursing home expenses.

Creating an Irrevocable Trust

Establishing an irrevocable trust prevents you from having to give up your assets to qualify for Medicaid. When assets are placed in an irrevocable trust, they are no longer legally yours and instead are transferred into the name of your chosen trustee. The trust arrangement can then state who you would like to have your assets after your death.

If a trust is created for the purpose of protecting assets from being used for long-term care costs, it is referred to as a “Medicaid trust.” A Medicaid Asset Protection Trust (MAPT) enables a person who would otherwise be ineligible for Medicaid to become eligible to receive nursing home care. The assets used to fund this trust are not counted for Medicaid eligibility.

Irrevocable trusts created after 1993 may contain assets that are considered a countable resource by Medicaid. Although irrevocable trusts can protect assets from being taken by Medicaid, Medicaid may still consider the transfer of the assets to the trust as a disqualifying transfer. If there is a discretionary clause and the individual or the individual’s spouse is a beneficiary, Medicaid will generally count all or some of the assets in the trust as available.

Using a Trust in Estate Planning

Unlike living trusts, irrevocable trusts contain assets that are often exempt from nursing home costs. However, there are certain drawbacks to consider. You will not be able to obtain principal from your irrevocable trust, but any dividends and interest you receive from the irrevocable trust do remain safe from seizure.

If the assets in a trust are not countable, you may face a Medicaid transfer penalty. This penalty is essentially a punishment for transferring assets out of your name to a location where it cannot be counted. A transfer penalty is only enforced if you try to apply for Medicaid within five years of the transfer.

If you are a Medicaid beneficiary, the state may attempt to recoup payments for certain expenses after you pass away, including long-term care facility costs. This is referred to as estate recovery. However, Medicaid will not try to recoup payments if you leave behind a spouse, a child under 21 years of age, or a child who is disabled or blind. A properly set up irrevocable Medicaid trust can help protect you from Medicaid estate recovery.

Speak with an Attorney Today

Irrevocable trusts can be complex and require the guidance of an experienced attorney can help ensure you follow the laws while meeting your goals and protecting your assets.

Here at JacksonWhite Law, we will thoroughly discuss your situation and learn about your financial situation, including any income or assets you may have. We will also do our best to help you understand your options. Get in touch with us now learn more about irrevocable trusts and for assistance getting the long-term care you need.

Contact the JacksonWhite ALTCS team today at (480)467-4337 and learn more your options for long term care.

Contact Our ALTCS Team Today

Call (480) 467-4337 or fill out our contact form to schedule your consultation.