It depends. The important thing to understand is there are different types of trusts. The trust most people are familiar with, the revocable living trust, will NOT protect your assets from nursing home expenses.

An irrevocable trust may be able to protect your assets from nursing home expenses. 

Revocable Living Trust

A revocable living trust allows the trust creator to remain in control of the trust assets, dictate the terms of the trust, and amend the trust. Because this trust creator exercises such a great degree of continuing control over the trust assets, the Medicaid system expects that person to exercise that control to access those assets and spend them on nursing care. Therefore, Medicaid benefits cannot be obtained if the trust assets exceed the Medicaid limitations. THE ASSETS WOULD STILL NEED TO BE SPENT regardless of whether they are in a revocable living trust.

Irrevocable Trust

Contrast this to an irrevocable trust. With certain types of properly designed irrevocable trusts, the trust creator can relinquish a sufficient degree of control over the trust assets so they are no longer considered to be owned by the trust creator. Because they are no longer controlled or owned by the trust creator, they can be PROTECTED and PRESERVED from Medicaid's spend-down and Medicaid benefits may be available without having to liquidate the assets in an irrevocable trust.

Who Owns the Assets of an Irrevocable Trust?

You may ask yourself: Who owns the assets of an irrevocable trust?

The answer is the trust itself does. The trust is an entity in and of itself capable of owning assets. Think of it almost like a corporation. A corporation is a separate entity that can own and manage assets with its own identity. An irrevocable trust acts similarly.

Rules and Regulations

There are some rules and regulations that need to be followed to obtain Medicaid benefits when using an irrevocable trust. For example, a transfer to an irrevocable trust is considered a gift to the trust and can cause a divestment or ineligibility period for obtaining Medicaid benefits if 5 years have not yet passed since the assets were transferred into the trust.

Estate Planning Strategies With Heritage Law Office

Proper planning and consultation with professionals is important due to the intricacies and added complexities of irrevocable trusts versus revocable trusts.

Contact us at 414-253-8500 or send us a message to schedule a consultation to make sure your assets are properly protected.

Frequently Asked Questions (FAQs)

1. What are the key differences between revocable and irrevocable trusts?

Revocable trusts allow the trust creator to retain control over the trust's assets and modify the trust's terms. Because of this control, assets in a revocable trust aren't protected from nursing home expenses as they're expected to be used towards such care by the Medicaid system.

Irrevocable trusts, however, involve the trust creator relinquishing control over the trust's assets. Once the assets are transferred, they are owned by the trust and aren't considered the creator's possessions. As a result, they may be protected from Medicaid's spend-down, provided certain rules are followed.

2. Can I obtain Medicaid benefits with an irrevocable trust?

Yes, Medicaid benefits may be available with an irrevocable trust. This is due to the assets within the trust no longer being considered the trust creator's possessions. However, there are certain rules to be followed to gain these benefits. One key rule is that transferring assets to an irrevocable trust is seen as a gift to the trust, and it can result in an ineligibility period for Medicaid benefits if less than 5 years have passed since the transfer.

3. What does "Medicaid spend-down" mean?

The term "Medicaid spend-down" refers to the process whereby an individual must spend their own money on healthcare costs until they reach the asset limits set by Medicaid. Only then will Medicaid start to cover their healthcare expenses. It's essential to understand that assets in a revocable trust aren't exempt from this process.

4. Who owns the assets in an irrevocable trust?

The assets of an irrevocable trust are owned by the trust itself. The trust is a separate legal entity capable of owning and managing assets, similar to a corporation. Once the assets are transferred into the trust, the trust creator relinquishes control over these assets, and they are no longer considered to be owned by the trust creator.

5. Can a trust help protect my assets from nursing home expenses?

It depends on the type of trust. Assets within a revocable living trust would still need to be spent on nursing home care, as the trust creator maintains control over these assets. On the other hand, certain types of properly designed irrevocable trusts can protect your assets from nursing home expenses, as the trust creator gives up control of the trust assets, and they are no longer considered owned by the trust creator.