The Truth About Revocable Trusts and Long-Term Care Costs
As healthcare needs increase with age, many retirees worry about preserving their assets while covering the high costs of nursing home care. A revocable trust is often considered for estate planning because it offers flexibility and control during life. However, it does NOT protect assets from nursing home costs or Medicaid spend-down requirements.
A revocable living trust is a legal arrangement that allows you to manage and distribute your assets. The grantor retains control and can change or cancel the trust at any time. Because of this retained control, the assets are still considered part of the grantor’s estate. That means they remain available to cover nursing home expenses and are counted when determining Medicaid eligibility.
To truly protect assets from long-term care costs, many turn to a Medicaid Asset Protection Trust (MAPT), which is a type of irrevocable trust. Unlike a revocable trust, an irrevocable trust transfers control of the assets out of your hands. Once the assets are placed into the trust, they are no longer considered yours and are generally protected from being used to pay for nursing home care. However, this must be done well in advance — at least five years before applying for Medicaid — due to the look-back period.
Establishing an irrevocable trust requires careful planning. You’ll need to name a reliable trustee or beneficiary who will manage the assets according to your wishes, as you’ll no longer have access to them. Timing is also critical. If the trust is created too close to when care is needed, the assets may still be counted for Medicaid purposes.
If you’re married, it’s important to structure the trust so that a surviving spouse doesn’t inherit the assets directly. If they do, it could affect their own eligibility for Medicaid. Instead, consider naming a child or another trusted individual as the beneficiary to keep the assets outside of the couple’s ownership.
While a revocable trust is a useful tool for managing and distributing assets, it doesn’t protect them from nursing home costs. To safeguard your wealth and maintain Medicaid eligibility, an irrevocable trust like a MAPT may be the right solution — provided it’s set up well in advance and thoughtfully structured. It’s wise to work with an estate planning attorney to develop a strategy that supports your long-term care needs, protects your assets, and honors your legacy.
At Legacy Law Firm, we have the only board-certifed elder law attorney in South Dakota. If you have questions or would like a FREE initial appointment to speak with an attorney, give us a call at 605-275-5665.
Read more: Revocable Trusts: Can They Shield Your Assets from Assisted Living Expenses?
