Many retirees go to nursing homes as their needs increase, creating a dilemma for protecting their wealth. A revocable trust places your wealth in a tax-protected vehicle you can control until you die. But, unfortunately, it won’t protect assets from a nursing home. However, there are ways to protect your assets from a nursing home or similar facility. Here’s what you can do instead to ensure your money goes to your loved ones.
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?
Because a revocable trust gives the grantor access to their wealth, it doesn’t protect assets from a nursing home. Instead, a revocable trust allows the grantor to pay nursing home fees with the money in their trust. As a result, the grantor’s trust will likely disqualify them for Medicaid assistance.
Asset Protection with Medicaid Planning
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
A MAPT isn’t the only consideration for protecting assets from nursing home costs. Remember the following when drawing up your financial plan:
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 span of time 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 assistance 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.
A revocable trust doesn’t protect assets from a nursing home because it gives the grantor ownership of the assets. Instead, an irrevocable trust (specifically in the form of a MAPT) can protect your wealth from nursing homes and clear the way for you to receive Medicaid assistance. Remember, you must create the trust at least five years beforehand to work correctly, and it’s vital to name a beneficiary you trust.
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 up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one 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.
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