Does a Living Trust Protect Assets from Nursing Home Costs?


Living trusts are an excellent way to protect and distribute your assets without having to go to probate. However, many trustors worry that their assets will be taken from the trust and spent on nursing home costs in retirement. Assets in a revocable or ‘living trust’ are often not protected from a nursing home, while assets placed in irrevocable trusts are generally protected from long-term care costs

What Is a Living Trust?

A living trust may be used as a way to handle one’s estate, while also providing clear instructions on how assets should be disbursed after death. Living trusts allow trustors to maintain greater control of their assets as this type of trust is able to be changed, modified or terminated while the trustor is still alive. Assets in a living trust may include real estate, bank accounts, investments, valuable possessions, and other belongings.

As the name suggests, a living trust is created when a person is still alive. This differs from a testamentary trust which does not take effect until after a person dies. Oftentimes, the trustor of a living trust also acts as the trustee. A trustee is a person that is responsible for handling the administration of the trust, such as filing tax returns and keeping track of income.

A living trust should also name a successor trustee who will manage the trust if you are no longer able to. Living trusts should also name one or more beneficiaries. These are the people or entities who will receive assets from the trust after your death.

There are several key benefits of creating a living trust. In addition to maintaining more control over your assets, a living trust enables the trustor to bypass probate. This means that a judge will not decide who receives your assets when you pass away.

Instead, a living trust will outline who receives the assets and when they receive them based on your instructions. As probate costs can be substantial, you can also save money by avoiding the courts. Living trusts can also provide long-term peace of mind.

Medicaid and Your Assets

Today, many retirees rely on Medicaid to cover nursing home care or placement in a long-term care facility. Without Medicaid, families are often forced to spend thousands of dollars to cover these expenses. It can be challenging for adults to qualify for Medicaid as it takes your income, household size, family status, disability, and other factors into consideration. Medicaid requires a person to have little income and few assets to qualify which could cause a living trust to interfere.

Some people believe that putting their assets into a living trust can help them qualify for Medicaid as their assets are no longer in their name. Unfortunately, this is not the case. As a living trust is revocable, you will maintain control over the assets and have direct access to these assets. This means that any assets in your living will are counted if you apply to Medicaid and you may no longer qualify.

When a person dies, Medicaid expects to be repaid for money spent on the nursing home. This process is done through the Medicaid Estate Recovery program. The Medicaid Estate Recovery program forces the sale of certain possessions when you die, such as your home.

Any asset found in a living trust can be considered a countable asset for Medicaid purposes, even assets that would normally be considered non-countable if they were not in the trust. Examples of countable assets include cash, bank accounts, IRAs, 401(k)s, and property other than one’s primary residence.

Five Year Look-Back Period

Medicaid governs the income and amount of assets a person can retain and still qualify for coverage. Retirees will generally have to “spend down” their assets and income when applying for Medicaid by paying for their own care until they reach specific levels specified by state law.

To avoid having to give up their assets, some aging adults will give away their assets in the months or years leading up to their nursing home stay. However, this information is often uncovered by Medicaid’s five-year look-back period.

Medicaid will generally look at up to five years of your finances to see what you have sold or gifted. If you transferred or gave away assets within the previous five years for less than fair market value, you may be ineligible for Medicaid for a certain amount of time based on the value of the items transferred or sold.

For this reason, it is important to begin estate planning more than five years before you plan on entering a nursing home to avoid problems within the five-year look-back period.

Contact JacksonWhite Law

The bottom line is that any assets placed into a revocable living trust are not protected from nursing home costs. In some cases, the assets in a revocable trust can be completely wiped out by nursing home care expenses before the beneficiaries ever see a dime.

However, this does not mean that you cannot leave your family assets after you pass away. To gain protection for your assets, consider transferring your assets into another type of trust, such as an irrevocable Medicaid asset protection trust which may allow the assets to be passed onto the next generation while also avoiding probate.

For more information about how to properly protect your assets for the future, contact the experts at JacksonWhite Law.

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

Contact Our ALTCS Team Today

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