Does a Revocable Trust Protect Assets From a Nursing Home?

As healthcare costs continue to rise, many Americans worry about protecting their life savings if they need long-term care. A common question that emerges during estate planning is whether a revocable trust protects assets from nursing home expenses. The short answer is no — a revocable trust generally does not shield your assets from nursing home costs. Unlike irrevocable trusts, revocable trusts allow you to maintain complete control over your assets during your lifetime, which means these assets are still considered available resources when determining Medicaid eligibility for nursing home coverage. Since you retain the ability to modify or dissolve the trust at any time, the government views these assets as accessible for your care expenses.

A financial advisor can help you with living trusts and other estate planning issues, ensuring they line up with your overall financial plan.

What Is a Revocable Trust?

A revocable living trust is a legal document stating your intentions for your wealth after you pass away. The trust names a trustee to handle the assets according to your wishes, the beneficiaries of your estate and conditions for your beneficiaries to fulfill to receive the wealth. For example, you might leave your wealth to your minor grandchildren to inherit upon reaching adulthood.

The creator of the revocable trust, also known as the grantor, can change or cancel it after making it. As a result, revocable trusts offer flexibility and allow for changes as situations evolve. For example, the grantor might add a new child or grandchild to the trust several years after creating it. In addition, the grantor has control of the trust and can use the funds as they wish while they are alive.

Does a Revocable Trust Protect Assets From a Nursing Home?

When considering asset protection, it’s crucial to recognize that a revocable trust does not shield assets from nursing home costs. Because the grantor retains control over the assets, they are still considered part of the grantor’s estate for Medicaid eligibility purposes. This means that if you require long-term care and need to apply for Medicaid, the assets in a revocable trust may be counted when determining your eligibility. Consequently, these assets could be used to pay for nursing home expenses, potentially depleting your estate.

For those concerned about protecting their assets from nursing home costs, other strategies may be more effective. One option is an irrevocable trust, which, unlike a revocable trust, cannot be altered once established. By transferring assets into an irrevocable trust, you relinquish control over them, which can help protect them from being counted for Medicaid eligibility. However, this strategy requires careful planning and should be implemented well in advance of needing long-term care, as Medicaid has a five-year look-back period for asset transfers.

Asset Protection with Medicaid Planning

SmartAsset: Does a revocable trust protect assets from a nursing home?

You can protect your assets by placing them in a Medicaid asset protection trust (MAPT), a type of irrevocable trust. You must transfer your assets to the trust at least five years before you enter a nursing home for them to be exempt from the Medicaid qualification process.

With a MAPT, you won’t be able to use your assets for nursing home expenses, and they won’t count when the government evaluates your financial situation for Medicaid benefits. In addition, the government can’t pursue reimbursement from the MAPT after you pass away.

Unlike a revocable trust, an irrevocable trust is unchangeable once you make it. In addition, you lose control of your assets because your beneficiaries gain ownership of the trust after its creation. As a result, careful planning is necessary to ensure you transfer your assets at the right time.

How to Protect Your Assets from Nursing Home Costs

Nursing home costs can quickly deplete a lifetime of savings. Protecting your assets from nursing home costs becomes essential for preserving your legacy and ensuring financial stability. These expenses often catch families unprepared, potentially forcing the liquidation of homes, investments and other valuable assets.

Use an Irrevocable Trust: An irrevocable trust is essential for protecting your assets. Otherwise, you’ll retain control of your assets and will have to use them to pay for your expenses. Likewise, a will, bank account, life insurance policy or annuity won’t do the job.

Choose Your Beneficiary Wisely: Next, picking the right beneficiary is crucial because they’ll control the assets once you create the trust. The beneficiary will decide how to spend money in the trust, so they should be reliable and understand your wishes for the trust.

Time the Trust Correctly: A sufficient period after making the trust is as critical as well. Specifically, at least five years must pass after you make the irrevocable trust for it not to count toward government assistance (Medicaid). Otherwise, you won’t be able to pay for a nursing home because of ineligibility and lack of access to your wealth.

Create Favorable Conditions for a Surviving Spouse: If you’re married, leaving your trust to your surviving spouse will jeopardize their ability to protect the wealth from a nursing home. Specifically, a surviving spouse inheriting the irrevocable trust will face the same issues of qualifying for government assistance because they own the trust. Instead, name a child or other family member as your beneficiary and trustee. This way, the wealth is out of the couple’s control, meaning neither of you can use it for nursing home expenses.

Bottom Line

Understanding how to protect your assets as you age is crucial for financial security. While revocable trusts offer many benefits for estate planning, they generally do not protect assets from nursing home costs or Medicaid spend-down requirements. Since you maintain control over assets in a revocable trust, these resources are still considered available to pay for your care. For meaningful asset protection, alternatives may be more effective, though each comes with significant trade-offs regarding control and timing.

Tips for Using Trusts to Protect Assets from a Nursing Home

Retirement planning means accounting for living expenses, inflation, healthcare costs and passing on your wealth to the next generation. Keeping your assets from a nursing home is one piece of a complex plan for optimizing your wealth. Fortunately, a financial advisor can help you create an estate plan for your family’s needs and goals. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
There are other legal documents you may need to include in your estate plan besides a trust. A will is one; a financial power of attorney is another. You may also want to draft an advance health care directive to outline your wishes for medical care when you’re not able to make decisions on your own.