Protecting assets from nursing home expenses is an issue that I am frequently asked about. Sometimes it may arise after a heart attack, stroke or other concern. Other times it may arise after a loved one moves into an assisted living facility or nursing home due to Alzheimer’s. Whatever the motivation, it is topic that is full of misunderstanding and misinformation. After 25 years of practicing law, I have heard numerous clients repeat things they were told or read regarding the Medicaid rules that are entirely incorrect.
One common area of misunderstanding is whether a trust will protect assets if nursing home care is needed. Just recently a client shared that his mother’s primary motivation in establishing a revocable trust some 20 years ago was to protect her assets in the event she required nursing home care. Unfortunately, with his mother now 87 years old and beginning to exhibit signs of dementia, I had to advise the client that her assets are not protected by her revocable trust. Here are some basic principles to help you avoid a similar mistake.
- A revocable trust will not protect assets from nursing home costs. The primary purpose of a revocable trust is to provide for the administration and distribution of the trust assets upon the death of the trustor (i.e. the trust creator). Since the trustor created the trust, can amend or revoke it, and can ordinarily use the assets for his or her benefit, the trust assets are not protected from nursing home expenses.
- An irrevocable trust will protect assets from nursing home costs. An irrevocable trust will protect assets from nursing home care expenses. However, there are some important caveats that must be understood regarding irrevocable trusts.
- Loss of control. For an irrevocable trust to protect assets, the trustor cannot have the use of or control of the trust assets. Generally, an irrevocable trust is only a viable option for someone who has assets that they are willing to give away and do not expect to need them for his or her living expenses.
- Five year look back period. Not only must control be relinquished over the assets, it must be done at least five years before a Medicaid application is filed. Because transferring assets to an irrevocable trust is considered divestment, it is subject to a five year look back period. As a result, it is generally not a viable strategy for someone who has been diagnosed with Alzheimer’s or other neurocognitive disease.
Protecting assets from Medicaid and nursing home expenses is a complicated topic. Be sure to seek advice from an experience elder law attorney.