Plain and simple, No, a revocable trust will not protect your assets from expensive nursing home costs. Only, Irrevocable trust setup properly can protect your assets from nursing homes. It wasn’t designed to do that. But revocable trust isn’t your only option. In today's crazy economic climate, you’re probably feeling like most people – afraid, concerned, worried about what the future may hold. You’re deeply anxious about protecting your assets and building a strong financial future, both for you and your loved ones.
But how do you do that?
When it comes to estate planning, you’re best to choose something like the revocable trust. But a big question for many is “Will this protect my hard-earned income from those steep nursing home costs?” A revocable trust might not be your best option. But maybe you’d be better off with an irrevocable trust.
In this article, we’re going to fully explore this question. And more than that, we’ll start by understanding the basics of a revocable trust, figuring out how it protects your assets, discussing some possible alternatives, and much more. By the end, you’ll know exactly what you need to do to get a revocable trust set up.
Understanding the Basics of a Revocable Trust
You may have heard the word before – trust. But do you know what it means? Could you explain it to your children? If not, maybe it’s best that we start at the beginning and give you some background about how a revocable trust works, how it protects assets from a nursing home, and what you need to do to get started today.
What is a Revocable Trust?
A revocable trust, or you might have heard it called a living trust, is a legal document that lets you transfer your assets into a trust. And the difference here is that when you make the transfer, you still have control over your assets while you’re alive. You might have also heard about irrevocable trusts. Those are similar, but as the name implies, you can’t make any changes once you’ve set it up.
The reason people love using a revocable trust is because you’re not locked in. Just like a good phone plan, you have no fixed contract, and you’re free to modify it, amend it, or revoke it altogether. Just like a phone plan, terms and conditions apply. But don’t worry, we’ll get into that.
When you set up a revocable trust, you, the creator (maybe sometimes called the grantor), transfer your ownership of assets into the trust. You can also appoint yourself as the trustee. If you don’t know what that is, the trustee is simply the person who’s legally responsible for overseeing and managing all the assets in the revocable trust. If you’re the trustee, you keep full control over your assets during your lifetime. Life happens. Things change. And so do your wishes. With the flexibility of a revocable trust, you can make changes to reflect what matters to you most.
Key Features of a Revocable Trust
Why do people love the revocable trust? Besides the flexibility, there’s another significant advantage. Your trust helps avoid probate, which is the legal process of distributing assets after you die. Probate is costly, drawn out, and generally, an unnecessary pain during an already difficult time. But with a revocable trust, all the assets within the trust are promptly and efficiently distributed to your beneficiaries. Just as you would want.
Additionally, a revocable trust keeps everything confidential and private. Nothing about your trust, your assets, or your beneficiaries gets listed on any public record. This is how it’s different from a will, where everything recorded becomes a matter of public concern.
So, you can make changes and amendments while you’re alive. But what if you’re incapable of making decisions? This is called incapacity planning, and it’s another reason why a revocable trust makes the most sense for you.
If you can’t manage your affairs anymore, maybe due to an illness or disability, that doesn’t impact your assets. You’ll have what’s called a “successor trustee”, who looks after your assets when you’re incapable of doing so. They step in on your behalf and nothing changes about the day-to-day management of your trust.
So, if you find yourself in the nursing home, your revocable trust makes a smooth transition to your successor, and everything runs exactly like it should without court intervention or guardianship.
The Role of a Revocable Trust in Asset Protection
We keep telling you that your revocable trust will work to protect your assets. But does it work for nursing home costs? And how exactly does that work? And why should you consider putting your assets into the hands of a legal tool like a revocable trust? Good questions. Let’s explore this a little more.
How Does a Revocable Trust Work?
We’ve made our case that a revocable trust can be a great tool for you. But even though it has a lot of upsides, it does not give you any sort of protection against nursing home costs. Let me explain a little why it doesn’t work.
Since you created the trust, and you keep control over your assets, the government says that those assets are still considered available resources. So, when the government is assessing your eligibility for Medicaid, it looks at everything you control, including anything within the power of your revocable trust.
Medicaid, as you know, is the government program that covers long-term care costs for those with limited income and assets. But if your assets within the revocable trust are counted towards your personal wealth, it could count against you and prevent you from accessing the full benefits of Medicaid.
Sorry to burst your bubble, but the revocable trust does not offer protection against nursing home costs, But that being said, it can still work well for your estate planning. This type of trust makes for easy and painless management and distribution of your assets during your life, and even after it.
When you set up a revocable trust, you can designate yourself as the trustee, and then a successor trustee to handle your affairs when you no longer can. Your assets can still provide income, be invested, and safely be protected from creditors or lawsuits.
The Limitations of a Revocable Trust in Asset Protection
If your primary goal is to protect yourself and your assets from the potential high costs of a nursing home, the revocable trust isn’t going to help you. But it’s still a useful tool for other purposes.
For example, when you lay out exactly how your assets should be managed and distributed, your revocable trust legally protects your wishes, no matter if you’re incapacitated or if you pass away. The power of a revocable trust lies in its smooth transfer of your assets to your loved ones, avoiding probate.
You should also know that revocable trusts are legally considered part of your assets and estate. So, Medicaid will have to include it in its tally of your personal wealth. So, while you’re getting the personal protection from creditors and lawsuits, the government isn’t unaware of your personal wealth. They know all about this trust, and they can use it against you when tallying your Medicaid eligibility for nursing home costs.
Nursing Home Costs and Financial Planning
How important is it that revocable trusts protect you from a nursing home? And is it likely to be your best financial option if that’s your main concern? Because there are other trusts out there that might work better for you. But first, let’s look at what you can expect a nursing home expense to look like.
The Financial Impact of Nursing Home Care
While they help some, for others, nursing home costs can be financially devastating. According to a recent study, the average annual cost of a private room in a nursing home is at least $100,000. And that’s what it costs now.
What will that price tag be when it’s time for you to look at nursing home options? Likely much higher. So, it’s very wise of you to look for ways to protect yourself from an expensive stay in a nursing home.
But of course, this is just an average. You might find that your area, your needs, and your expected lifestyle will affect the end price quite a bit. For instance, there are high-end nursing homes with luxurious accommodations and specialized medical services. That’s going to drive costs up quite a bit. But you’ll also find the opposite, that basic facilities with essential care come at more reasonable rates.
Planning Ahead for Long-Term Care Costs
Yes, the price point could be high for nursing homes. And with that in mind, it’s a good idea to prepare for the possibility that your assets could be at risk from such high long-term care costs.
If you want to plan ahead, you still have several options to save your money and still get the care you’d need. For instance, you could opt for long-term care insurance, which covers costs like nursing homes this insurance keeps the financial off you and your loved ones. And protects your assets from nursing home stays. You might also want to speak with a financial advisor about elder care options that work for you.
The reason you’re considering if revocable trusts protect assets from nursing home costs is Medicaid eligibility. Medicaid does a great job covering nursing home costs for anyone with limited financial resources.
But that coverage is limited. And it’s strictly decided based on your income and assets. You can still safely preserve your assets so that you qualify for Medicaid assistance. But that’s a different kind of trust, not the revocable trust you’re considering.
Alternatives to Revocable Trusts for Asset Protection
By now, It's clear that a revocable trust does not protect your assets from nursing home costs. But what does? Well, although you’d get better results from speaking with a financial advisor, you can go into that meeting more prepared with some possible alternatives.
Irrevocable Trusts and Their Benefits
We talked about this at the opt of this article, but instead of a revocable trust, irrevocable trusts give you a lot more asset protection, specifically around nursing home costs. Just like revocable trusts, you transfer ownership of your assets into an irrevocable trust.
But the key difference is that you lose control over those assets. And when you no longer control them, they’re not counted as personal resources for Medicaid eligibility. The catch here is that an irrevocable trust doesn’t allow you to modify the trust terms or reclaim your assets. It’s a permanent solution. So, you shouldn’t take it lightly.
Irrevocable trusts also better protection from creditors and lawsuits since the assets are no longer your property. So, if you work in a high-risk job, or you have concerns about creditors accessing your hard-earned money, the irrevocable trust could be a better option for you.
Other Legal Tools for Protecting Assets
Along with irrevocable trusts, you can also choose certain legal tools to protect your assets from nursing home expenses. You might think about gifting your assets. Or creating a family-limited partnership. Or possibly a Medicaid annuity. Each of these strategies has unique benefits and requirements. It’s beyond the scope of this article to explore these further. But if you do your research, you might find these options to be better for you than the revocable trust.
If you gift your assets, you’re reducing the size of your estate. You will receive tax benefits, and your eligibility could improve for Medicaid. But you should check out what gifting taxes exist in your area. You don’t want to anger the IRS. Avoid those costly tax penalties.
Family-limited partnerships might also work, giving you a way to transfer your assets to family members and still keep control. If you want to involve your family in managing your assets, this could be your best option rather than a revocable trust.
Seeking Professional Advice for Asset Protection
If you want to do some estate planning or long-term care planning, it’s best not to do it alone. Revocable trusts aren’t going to protect your assets from nursing home costs, but the alternatives can be complex. Wouldn’t it be best to speak with someone who understands all the implications for you?
When to Consult a Financial Advisor
There are a lot of complexities in asset protection planning. This is why you’d want to hire a financial advisor to talk about revocable trusts. And just any advisor, but one who specializes in elder care and asset protection. These professionals will look over your situation, give you valuable insights, and possibly suggest the best option to protect your assets and prepare for nursing home care costs.
The Role of an Elder Law Attorney in Asset Protection
Alongside your financial advisor, you’ll also want to find an attorney working in elder law. These lawyers know everything there is to know about asset protection for the elderly. They talk through the legality of all the strategies we covered. They’ll draft all your trust documents for your revocable trust, and they’ll keep everything legal and above board.
But the reason you want an elder law attorney is because they specialize in aging, incapacity, and long-term care issues. They truly are invaluable partners for asset protection planning. Use their expertise for Medicaid laws, estate planning, and probate procedures. It’ll set you up for success for many years to come.
Revocable Trusts and Nursing Homes: The Final Word
As you can see now, the revocable trust has a ton of benefits that you might really enjoy. But it doesn’t protect your assets from nursing home expenses. But that’s not what it was designed to do. If you want a trust to protect assets from nursing home care, consider an irrevocable trust which might serve your needs better.
In any case, your best option to protect your assets is to speak with someone who understands strategies like irrevocable trusts and other legal tools. If you put the work in now, you’ll create a solid foundation for protecting your assets today, tomorrow, and well into the future. Look after yourself. And look after those you love. Because that’s what matters most.
