Does a Trust Protect Assets from Nursing Home
Yes, some trusts are capable of shielding assets from nursing home expenses, but only properly created irrevocable trusts do so. Revocable trusts do nothing to shield assets from nursing home expenses because you have control over the assets.
Understanding Trusts and Nursing Home Protection
More families have to face the stern reality of nursing home cost, which amounts to over $10,000 a month across the country. Top-notch facilities in certain regions can amount to $15,000 or more a month. The query "can a trust shield assets from nursing home" becomes urgent when facing possible long-term care requirements.
Statistics reveal that almost 70% of Americans over 65 will need long-term care for some duration during their lifetime. Since the average nursing home stay is 2.5 years, families can easily spend $300,000 or more in care costs. Such is the reality that asset protection planning becomes a requirement for middle-class families.
A trust is an agreement under law where you transfer the ownership of assets to a third party (trustee) to manage on behalf of certain beneficiaries. Not every trust, however, provides the same level of protection against nursing home expenses. The distinction between different types of trusts is critical in effective planning.
The success of asset protection is only in the form of trust that you establish and when you establish it. Understanding these differences is crucial to protecting your family's financial well-being. A majority of families mistakenly believe that any trust will provide protection, which can lead to costly planning mistakes.
Medicaid, the government-funded insurance that covers long-term care, has tight asset and income restrictions. In all but a few states, you are allowed to have just $2,000 in assets and be eligible for benefits. This means families must spend down their life savings first before they can get government assistance, barring they plan ahead with sound trust arrangements.
Types of Trusts: Revocable vs. Irrevocable
Revocable Trusts: No Protection
A revocable trust, or living trust, allows you to maintain complete control of your property during your lifetime. You can modify, amend, or end the trust at will. These trusts are popular for estate planning because they avoid probate and protect your beneficiaries' privacy.
Is a revocable trust going to protect your assets from a nursing home? No. Because you can control the assets, Medicaid will consider them available assets when they determine whether you are eligible for nursing home benefits.
Assets held in revocable trusts are still your assets for Medicaid purposes. That is, they must be spent down before you can become eligible for government assistance with nursing home care. The ease that is attractive when you utilize a revocable trust for estate planning actually harms you with regard to asset protection.
Most people do not realize that their carefully prepared revocable trust does not provide any protection for future care costs. Estate planning attorneys do not inform them about this limitation, leaving families vulnerable to care costs when they are required.
For example, if you have $500,000 in a revocable trust and need to go into a nursing home, Medicaid will request that you spend nearly all of this money on care before they will provide any aid. At $12,000 per month, this would cover three and a half years of care, with barely enough left over for your spouse or children.
Irrevocable Trusts: Real Protection
An irrevocable trust cannot be changed, unmade, or canceled after a trust is created. If you put assets into an irrevocable trust, you relinquish ownership and control permanently. This simple difference makes irrevocable trusts extremely powerful asset protection tools.
Will assets be protected from nursing home costs if the trust is irrevocable? Yes, but only in limited situations. Once assets have been put into an irrevocable trust, they become no longer yours when qualifying for Medicaid.
This separation of you from your personal assets is the legal foundation for asset protection against nursing home expenses. The magic is that you must actually give up all control and access to the assets for protection to be effective.
The irrevocable nature can seem restrictive, yet it is precisely this characteristic that provides legal protection. Medicaid will not count assets which you neither own nor have a right over. Nevertheless, this strategy requires some forethought and complete trust in your trustee and beneficiaries.
Several irrevocable trusts serve different purposes. Medicaid Asset Protection Trusts are designed for long-term care planning, but other irrevocable trusts can serve to save taxes or make charitable gifts. Knowledge of the distinctions is critical to successful planning.
How Medicaid Asset Protection Trusts Work
Medicaid Asset Protection Trusts (MAPTs) are specially designed irrevocable trusts that help families become eligible for Medicaid while retaining wealth for future generations.
Key Components of MAPTs
Grantor (Trustmaker): The person who creates the trust and funds it.
Trustee: A third individual who possesses the property in the trust. They cannot be the grantor or spouse.
Beneficiaries: Usually the children or other dependents of the grantor who will eventually receive the assets.
When you set up a MAPT, you transfer assets like your residence, investments, or savings accounts to the trust. The trustee manages these assets according to the terms of the trust.
Income vs. Principal Protection
Most MAPTs allow the grantor to continue to receive income from trust assets and protect the principal. For example, if you place rental property in the trust, you can continue to receive rental income.
But this income must not exceed Medicaid income thresholds. In 2025, the majority of states terminated at $2,901 monthly income for Medicaid eligibility for nursing homes.
The Critical 5-Year Lookback Period
Does a trust prevent assets from going to a nursing home immediately? No, timing is crucial due to Medicaid's 5-year lookback rule. This is likely the most important aspect of Medicaid planning that needs to be understood by families.
How the Lookback Works
Medicaid reviews all the asset transfers that occurred in the five years leading up to your application. Any of the transfers that were done during this time that weren't for fair market value may initiate penalty periods. The lookback period has widespread usage in most states, though California stands out at 30 months.
If you transfer $200,000 into an irrevocable trust and your penalty divisor in your state is $5,000, then you would have a 40-month penalty period during which Medicaid will not cover your care. You will be paying for long-term care costs out of pocket during the penalty period.
The penalty amount varies from state to state based on the region's average cost of nursing home care. Higher cost nursing homes translate into higher penalty divisors, and thus shorter penalty durations for the same transfer size.
Planning Ahead is Important
Do trusts protect assets from nursing homes if you create them at the last minute? No, unfortunately. The 5-year rule necessitates planning well ahead of needing long-term care.
The lookback period begins from when you apply for Medicaid, not when you enter a nursing home. Assets transferred to an irrevocable trust more than five years before applying are secure. This time requirement compels planning early.
Too many families wait until a health emergency to begin planning. By the time this happens, it is normally too late to implement effective asset protection strategies. It is advisable to create a Medicaid Asset Protection Trust when healthy and planning is theoretical rather than mandatory.
Let's consider the following example: John establishes an irrevocable trust in 2020 when he is 70 years old and in good health. He puts his $400,000 home and $300,000 of investments into the trust. In 2026 when he is 76 years old, John needs to go into a nursing home and apply for Medicaid benefits. Since over five years have passed, the assets within the trust are protected, and John qualifies for Medicaid immediately.
If John waits until 2024 to create the trust, he would have a long penalty period and would need to pay for care privately until the end of the lookback period.
What Assets Can Be Protected
Primary Residence
Your house is typically your most valued asset and a highest priority to keep safe. A trust that protects assets from nursing home costs typically takes the family home. Home equity limits vary by state, between $730,000 and $1,097,000 in 2025.
When you transfer your home to a MAPT, you are usually able to retain the right to live in it for life without deducting its value from your Medicaid asset calculation. This is known as a "retained life estate" and allows you to stay in your home without removing its value from your Medicaid asset calculation.
The home transfer plan is particularly valuable for couples who want to secure the family house passes to children rather than being sold to pay for care. Without this planning, Medicaid estate recovery can claim the house after both partners have passed away.
Some families worry about losing their home if they place it in a trust. However, well-drafted MAPTs typically provide provisions that allow you to continue living in the house for life and even sell it if necessary, as long as any proceeds remain within the trust.
Investment Assets
MAPTs can transfer various kinds of financial assets like bank accounts, certificates of deposit, stocks, bonds, mutual funds, and other property aside from your home. Business interests may also be transferred, although this will entail careful attention to operating details.
Timing is of the essence when transferring investment assets. Income-producing assets must be balanced in light of this, since the income will be allocated to the income cap of Medicaid. There are trusts that qualify as "grantor trusts" for tax purposes, meaning that you still have to pay taxes on the trust's income.
Real estate investments must be given special consideration since they tend to generate rental income. The trust needs to be designed to manage the income in the right way while ensuring Medicaid qualification.
Retirement Accounts
Rolling over retirement accounts such as 401(k)s and IRAs into trusts is not usually advisable for tax reasons. Withdrawing retirement accounts invokes upfront taxation and potential penalties for early distribution.
But retirement accounts do enjoy some creditor protection in writing under federal law. IRAs and 401(k)s in certain states are exempt assets and not subject to Medicaid availability so transfer is unnecessary.
The choice of retirement accounts must be carefully made with tax and legal professionals familiar with the benefits and pitfalls of each strategy.
Benefits of Asset Protection Trusts
Medicaid Eligibility
The main advantage is becoming eligible for Medicaid long-term care services without having to spend down all of your assets. This can save hundreds of thousands of dollars in nursing home expenses.
Estate Protection
Assets in well-structured MAPTs are exempt from Medicaid estate recovery. When Medicaid beneficiaries pass away, states generally pursue recovery from their estates. Trust assets are immune from these claims.
Family Legacy Preservation
MAPTs allow you to preserve wealth for your children and grandchildren even as they continue to get proper care. This saves your life's earnings from being completely wiped out by healthcare expenses.
Avoiding Probate
Assets in the trust avoid probate, saving time and money on your heirs and keeping privacy intact.
Restrictions and Limitations
Loss of Control
The greatest disadvantage of irrevocable trusts is giving up control over your assets permanently. You cannot touch the principal even in case of emergencies without risking loss of protection through the trust.
Inflexibility
Irrevocable trusts, once created, cannot be amended easily. This lack of flexibility can be a problem if family situations change.
Tax Implications
Depending on the design of the trust, you will have different tax consequences. There are trusts that are "grantor trusts" and are taxed on their income to you, and others that are taxed as separate entities.
Not For Everyone
Asset protection trusts are best for people with significant assets (usually over $150,000 excluding their residence) and trusted family members who can serve as the trustees.
Needed for Successful Protection
Effective Trust Structure
The trust needs to be properly drafted to comply with Medicaid regulations. All states have different requirements, and mistakes render the protection useless.
Trustee Choice
Choose a responsible and trustworthy professional or family member to serve as trustee. The trustee must administer assets on behalf of beneficiaries, not himself.
Final Asset Transfer
You have to fully divest and surrender all rights to access principal. Retaining any rights to access principal defeats the purpose of the trust.
Documentation
Maintain detailed records of all transactions and transfers. Proper documentation is crucial in the event Medicaid challenges the transfers during their audit.
Costs and Professional Guidance
Attorney Fees
Creating a Medicaid Asset Protection Trust costs typically $2,000 to $12,000, depending on geography and complexity. While this is expensive, it's nothing compared to the expense of a nursing home.
Ongoing Expenses
Trusts can have ongoing administrative expenses, tax preparation fees, and trustee costs. Factor these into your plan.
Professional Team
Effective Medicaid planning requires cooperation among elder law attorneys, financial planners, and tax specialists. Don't attempt this tricky planning without professional help.
Alternative Approaches
Long-Term Care Insurance
Purchasing long-term care insurance can cover nursing home costs without triggering asset transfers or Medicaid qualification.
Annuities
Medicaid-qualified annuities can convert excess assets to income streams, which can be beneficial for Medicaid qualification.
Caregiver Agreements
Compensation of family caregivers for care services via written agreements can make it easier to spend down assets while remunerating family members.
Final Thoughts
Will a trust protect assets from nursing home costs? Yes, but only if you use the right type of trust, create it properly, and plan in advance.
Irrevocable trusts, specifically Medicaid Asset Protection Trusts, can effectively shield assets from nursing home expenses when created at least five years before needing care. These trusts allow families to preserve wealth while qualifying for Medicaid long-term care benefits.
However, this protection comes at the cost of giving up control over your assets permanently. The decision requires careful consideration of your financial situation, family dynamics, and long-term goals.
Does a trust protect assets from a nursing home in every situation? No, protection is dependent on good planning, timing, and compliance with advanced state and federal regulations.
Given the high risk and complexity involved, any person considering asset protection planning should hire the services of skilled elder law attorneys with Medicaid planning credentials. Professional guidance is extremely affordable compared to the possible savings and feeling of security these strategies produce.
Remember, Medicaid planning is not about cheating the system – it's about using legal methods of holding on to family property while keeping access to appropriate care. With some planning, you can both protect your legacy while receiving the care that you or a loved one may need.
The issue is not whether you can afford Medicaid planning, but whether you can afford not to. Nursing home care is more than $120,000 annually in most locations, and so the monetary harm of not planning can be devastating to families.
Start talking with your family and professional advisors today. The earlier you begin planning, the more options you will have for protecting your assets and ensuring your family's economic future.
