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Fact or Fiction? I Can Protect My Assets From a Nursing Home with a Revocable Trust?

This question comes up regularly in conversation with a wide range of people. And with good reason: nursing home care is expensive, and can quickly drain assets that took decades to accumulate. Some people are involved in the care of their aging parents, and some are contemplating their own later years.

Many people have heard stories that it does — but unfortunately, the answer is no. A revocable trust is great for many reasons, but it does NOT protect assets from nursing home expenses.

What are the Benefits of a Revocable Trust?

There are several benefits, but perhaps the biggest advantage of placing your assets in a revocable trust is that while you’re alive, it’s really no different than owning an asset in your own name, but at your death, because your assets are in a revocable trust, your assets avoid the probate process and go directly to your chosen beneficiaries.

Another advantage is that a revocable trust allows you to make specific provisions for minor beneficiaries and beneficiaries with special needs.

So Why Have I Heard that a Trust Can Protect My Assets from a Nursing Home?

Probably because there is such a trust — an irrevocable trust. Properly executed, you may protect your assets from nursing home expenses if — and it’s a big if — those assets were transferred to an irrevocable trust at least five years before you go into a nursing home.

What’s the catch? An irrevocable trust is truly irrevocable. Once it is created you cannot change it. In addition, once you transfer an asset into an irrevocable trust, you no longer own that asset, and you can’t take it back from the trust. Also, in order for the irrevocable trust strategy to work, you cannot serve as trustee of the trust. The named trustee has full control of your assets — it’s a lot of control to give up.

What If I Give Everything to My Children?

Yes, that will work! But you no longer own your assets. You are giving everything to your children and placing complete faith in them (and, because the assets are now legally your child’s, they become subject to any creditor claims that might arise against your child). Also, there is a “five year look-back” on the transfer, so it won’t work if you need to enter a nursing home before then.

What’s My Best Course of Action?

First, talk to your estate planning/elder law attorney about your overall plan. What do you want accomplished with your assets? What’s the legacy you wish to leave to your family, friends, and community? What’s your big picture? Make sure that all your estate planning documents — wills, durable powers of attorney for finances and for health, and revocable trust, if appropriate, are up-to-date and reflect your most current wishes.

See your attorney at least every five years to make sure everything is up-to-date. Doing that, you will be prepared to consider more advanced planning options on a timely basis.