Does an Irrevocable Trust Protect Assets from Nursing Home Costs?

Understanding Irrevocable Trusts

An irrevocable trust is a type of trust that, once established, cannot be modified or terminated without the permission of the beneficiaries. This characteristic is what provides asset protection, as the assets placed within the trust are no longer considered part of your estate. This means that if you require long-term care and enter a nursing home, the assets in the irrevocable trust are generally protected from being used to pay for your care.

How Does an Irrevocable Trust Work?

When you create an irrevocable trust, you transfer ownership of your assets to the trust. This can include cash, real estate, investments, and other valuable items. The trust is managed by a trustee, who can be an individual or an institution, and the beneficiaries are those who will receive the assets after your passing or under certain conditions.

Benefits of Using an Irrevocable Trust for Asset Protection

• Protects assets from creditors and nursing home expenses.
• Reduces taxable estate value.
• Ensures assets are distributed according to your wishes.
• Provides peace of mind for you and your family.

Limitations and Considerations

While irrevocable trusts offer significant benefits, they also come with limitations. One major consideration is the five-year look-back period imposed by Medicaid. If you transfer assets into an irrevocable trust within five years of applying for Medicaid, those assets may still be counted when determining eligibility for coverage of nursing home costs.

Steps to Set Up an Irrevocable Trust

1. Step 1

   Consult with an estate planning attorney to discuss your goals and the specifics of setting up an irrevocable trust.

2. Step 2

   Choose a trustee who will manage the trust and ensure your wishes are followed.

3. Step 3

   Identify and list the assets you wish to transfer into the trust.

4. Step 4

   Draft the trust document, outlining the terms and conditions of the trust.

5. Step 5

   Transfer ownership of the identified assets into the trust.

Comparison of Irrevocable Trusts vs. Revocable Trusts

Feature	Irrevocable Trust	Revocable Trust
Ownership	Assets are transferred out of your estate	You retain ownership and control
Tax Implications	May reduce estate taxes	Assets are included in your taxable estate
Modification	Cannot be modified	Can be altered or revoked
Asset Protection	Yes, protects from creditors	No, assets are vulnerable

Key Takeaways

• An irrevocable trust can protect your assets from nursing home costs.
• Consulting with a legal expert is crucial for proper setup.
• Be aware of the five-year look-back period for Medicaid eligibility.
• Understand the implications of transferring assets into the trust.