Planning for Nursing Home Expenses

The question raised in the article “Fact or Fiction: I Can Protect My Assets from a Nursing Home with a Revocable Trust” from New Hampshire Business Review is frequency asked, and the reason for it is understandable. Any form of long-term home care is costly and can quickly decimate a lifetime of savings. There are ways to protect assets, but a revocable trust is not one of them.

There are some reasons why a person might find a revocable trust attractive. For one thing, if the grantor (the person who creates the trust and is also the trustee (i.e., the person in charge of the trust)), there is no loss of control. It is as if you still own the assets that are in the trust. However, when you die, the assets in the trust don’t go through the probate process. Instead, they go directly to the beneficiaries named in the trust documents. A revocable trust also lets you make specific provisions for beneficiaries and beneficiaries with special needs.

There is a trust that can be used to protect assets from the cost of long-term care. It is the irrevocable trust, which must be properly prepared by an estate planning attorney and done in a timely fashion: five years before the person needs to go to a nursing home.

The difference is in the name: the irrevocable trust is irrevocable. Once it is created, you (the grantor) may not change it. Once an asset is placed in the trust, you don’t own it. The trust is the owner. Generally, you cannot change the provisions; however, if you have a trust protector appointed in your trust, the trust protector can modify certain sections of your trust to keep up with any changes in the Medicaid rules and eligibility for long term care benefits under this program. In addition, if your trust has a limited power of appointment, you may be able to make changes at your death via your Last Will and Testament. In Massachusetts, while you, as the Grantor, can serve as the trustee of your irrevocable trust, it is not recommended.

You have to be prepared to give up some control of the assets that go into the trust. If you are like most elders, you live off your pension and Social Security, as well as investment income. In this case, an irrevocable Medicaid trust (which is called a grantor trust for tax purposes) allows you to take and use income derived from trust assets, e.g., rents from a vacation home, dividends from stocks, , and income from investments held in the trust. In addition, not all of your assets have to go into an irrevocable trust. Leaving some assets in your own name, while transferring other assets into a Medicaid trust, can still allow you to achieve your long term care/asset protection goals. This is a very complex area and is advisable to seek counsel from an experienced elder law attorney.

Some people think simply by handing over their assets in the trust to their children, they’ve solved everything. However, there are problems. If your children are sued or run into debt problems, that lifetime of saving which is now in their control is also subject to creditors or claims. If you need to enter a nursing home within five years of your handing over the assets, you also won’t be eligible for Medicaid.

The best course of action is to meet with an estate planning attorney and discuss your overall estate plan. You should have a frank conversation about your wishes, what kind of a legacy you want to leave behind and your bigger picture for the world after you’ve passed. The attorney will help work out a plan that will protect you, your spouse, your assets and your family.

Remember that an estate plan is not a one-and-done document. Every three or four years, or as “life happens” and changes occur in your life, you should touch base with your attorney. A new family member by marriage, birth or adoption, may call for some changes to your estate plan. It might also be affected by the sadder events of life; death, divorce, or a significant health change. All require a phone call and a discussion to ensure that your estate plan still achieves your goals and protects those you love.

Reference: New Hampshire Business Review (July 30, 2020) “Fact or Fiction: I Can Protect My Assets from a Nursing Home with a Revocable Trust”