Is an Irrevocable Trust Protected from Nursing Home Costs?

November 2, 2020

As a person ages or becomes disabled, they may need nursing home or other long-term care to help with daily living. The costs for care can be expensive, often topping $100,000 annually in Pennsylvania for a private room.

It is important to plan for long-term living costs. In most cases, by the time someone needs nursing home care, they have already spent a lot of their assets. If they ever leave the nursing home, they often have no funds left for themselves or for inheritances.

Consulting with a lawyer is crucial to do before the need for long-term care. An attorney can help with trust and estate matters and make sure their client is protected. There are strategies to protect many assets from nursing home costs, including establishing an irrevocable trust.

How are Nursing Home Costs Usually Paid?

To understand how to protect assets from nursing home costs, it is important to understand how nursing home costs can be paid. There are generally three ways people pay for nursing home costs:

Individual: It can be paid by a person’s own income, including retirement income, stocks, mutual funds, 401(k)s, savings accounts, and even the sale of a home or valuables.

Private Insurance: Including long-term care insurance and long-term care policies.

Medicaid: Medicaid is a joint state-federal program for people with low incomes. Medicaid covers many nursing home costs, but a person needs to meet income thresholds and other eligibility requirements to qualify. The federal Medicare program does not cover nursing home costs.

What Does it Mean to Protect Assets from Nursing Homes?

Medicaid can require individuals or families to spend down assets that are considered income before they will begin paying nursing home benefits.

Medicaid also has a five-year look-back provision. This means that the government can look back at assets that were transferred within a person’s estate for a five-year period before the Medicaid application is received. If the transfers were not exempt according to Medicaid regulations, the person may not be eligible for Medicaid for a certain length of time. In addition, upon the death of a Medicaid recipient, the government will try to recover what they paid out in benefits for the decedent’s nursing home care.

What Does Medicaid Consider as Countable Assets?

Since Medicaid is offered jointly between the federal government and each state, there may be differences in what is considered as a countable asset for Medicaid eligibility, but the following generally count:

  • Bank accounts, including savings, checking, money market accounts
  • Certificates of deposits
  • Stocks and bonds
  • Life insurance policies with cash values over $2,500
  • Certain property or rental income
  • Certain vehicles

How Does an Irrevocable Trust Protect Assets from Nursing Home Costs?

An irrevocable trust puts a person’s qualified assets, including property, into a trust that is then owned by the trust or trustee, not the individual or family. The person can no longer use the assets or change any provisions in the trust. That is why trust provisions and the choice of trustee must be carefully thought out and guided by an experienced lawyer.

Assets transferred into an irrevocable trust become non-countable for Medicaid purposes. However, these assets are seen as gifts and are subject to the five-year Medicaid look-back period. After five years, the transferred assets are no longer subject to penalties or delayed eligibility for Medicaid benefits.

The design of the trust is important. Not all assets in an irrevocable trust are protected from nursing home and Medicaid costs, including those that the trustee can give to the beneficiary. The structure of the trust is vitally important. A lawyer can maximize the protection of assets in a trust through design and other strategies.

Chester County Wills and Estates Lawyers at Eckell Sparks Help Clients with Estate Planning and Asset Protection

If you have questions about estate planning, protecting assets, and paying for nursing home costs, contact one of our Chester County wills and estates lawyers at Eckell, Sparks, Levy, Auerbach, Monte, Sloane, Matthews & Auslander, P.C. today. Our lawyers help clients with various estate and long-term planning issues. For a free consultation, contact us online or call us at 610-565-3701Located in Media and West Chester, Pennsylvania, we serve clients throughout Delaware County, Chester County, and Montgomery County.