Does a Family Trust Protect Assets From a Nursing Home?

Does a family trust protect assets from a nursing home? The answer is yes, but it has to be a specific type of trust.

Deciding to put a loved one in a nursing home is one of the most important decisions you can expect to make during your lifetime. The realization that someone you care for can no longer take care of basic daily functions is a stark reminder of our mortality. Add to the emotional roller coaster ride the high cost of nursing home care, and you have a full plate of worry.

The cost of nursing home care in the United States varies depending on the city and state where you live. Annual nursing home care can cost as little as $50,000, with the ceiling for nursing home costs exceeding $150,000. If a loved one dies with nursing home debt, the nursing home facility assumes the role of a creditor. This means the facility will try to collect on the unpaid debt just like any other creditor.

Then, we have the issue of Medicaid. The state has the right to attempt to recover the costs of Medicaid after a recipient dies. How much a state tries to collect once again depends on where you live. If the state where you live successfully recovers money from a Medicaid recipient, the recipient has less money to leave behind as an inheritance.

A revocable living trust allows you to pass on your assets to named beneficiaries. This type of trust helps you avoid the probate process, and it gives you the flexibility to change the terms of the trust. On the other hand, an irrevocable family trust does not give you the flexibility to modify the terms of the trust. However, when it comes to creditors, that is a good thing.

When you move assets into an irrevocable trust, you lose control over the trust. This means the trust owns the assets. Once you place assets into an irrevocable family trust, creditors no longer can access the assets for liquidation to pay off your loved one’s debts. Setting up an irrevocable trust can be a complex process, which means you should work with an estate planning attorney who has experience setting up this type of trust.

A Medicaid asset protection trust shields your assets from Medicaid, as well as other types of creditors. You must transfer assets into a Medicaid asset protection trust at least five years before you start to receive financial assistance. Medicaid pays for nursing home costs, but the program is available only to people that meet the income threshold. Each state has established a limit for how much a Medicaid applicant can earn.

If you earn more money and own more assets than the maximum limit, opening a Medicaid asset protection trust and transferring your assets into it can help you become eligible for Medicaid assistance.