Does my revocable trust protect assets from all long term care costs including nursing home and home care expenses? There are ways to protect assets, but a revocable trust is not one of them. 

This question is frequently asked, and the reason for it is understandable. Any form of long-term home care is costly and can quickly decimate a lifetime of savings. A revocable trust can be an excellent tool for managing your trust assets if you should become incapacitated. As a will substitute, it avoids probate, but it does not protect assets.

There are some reasons why a person might find a revocable trust attractive. For one thing, if the grantor (the person who creates the trust) is also the trustee (the person in charge of the trust), there is no loss of control. It is as if you still own the assets that are in the trust. However, when you die, the assets in the trust don’t go through the probate process. Instead, they go directly to the beneficiaries named in the trust documents. A revocable trust also lets you make specific provisions for beneficiaries and beneficiaries with special needs.  The revocable trust can establish instructions on the use of the inheritance, that simple beneficiary designation forms cannot.

For a trust to protect assets from the cost of long-term care, it must be an irrevocable trust. When creating this type of irrevocable trust it must be properly prepared by an estate planning attorney as it becomes permanent on signing. The assets in the trust are no longer in the control of the grantor.  If done for Medicaid eligibility reasons, timing is also an important consideration. Medicaid has a five-year lookback period and possible penalty period before a person who needs to go to a nursing home would be eligible for benefits.  This needs to be understood before creating an irrevocable trust.

The difference is in the name: the irrevocable trust is irrevocable. Once it is created, you (the grantor) may not change it. Once an asset is placed in the trust, you don’t own it. The trust is the owner. You can’t change your mind. The grantor may also not serve as the trustee of the trust.

You have to be prepared to give up control of the assets that go into the trust. Some people think simply by handing over their assets in the trust to their children, they’ve solved everything. However, there can be problems. If your children are sued or run into debt problems, that lifetime of saving which is now in their control is also subject to creditors or claims. If you need to enter a nursing home within five years of your handing over the assets, you also won’t be eligible for Medicaid.

The best course of action is to meet with an estate planning attorney and discuss your overall estate plan. You should have a frank conversation about your wishes, what kind of a legacy you want to leave behind, and your bigger picture for the world after you’ve passed. The attorney will help work out a plan that will protect you, your spouse, your assets, and your family.

Remember that an estate plan is not a one-and-done document. Every three or four years, or as “life happens” and changes occur in your life, you should touch base with your attorney. The addition of a new family member by marriage, birth, or adoption may call for some changes to your estate plan. It might also be affected by the sadder events of life; death, divorce, or a significant health change. All require a phone call and a discussion to ensure that your estate plan still achieves your goals and protects those you love. Today is the day to plan for catastrophic health care costs and find the trust that suits your needs.  Contact our firm today for help.

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