Living Trusts and Nursing Homes - By Tim Barkley
Often, this writer is
approached by clients asking him to draft a living trust
to protect their assets against the costs of nursing home
care. The author has been at great pains to explain that a
living trust does not protect against such costs.
A nursing home is nothing
more than a creditor – just a creditor demanding payment on a
very large bill.
Because the person who sets
up a living trust can "revoke" that trust, that is, take all
assets out of that trust, the trust provides no protection
against creditor's claims. Any creditor, nursing home or
otherwise, has all the rights the debtor has, including
causing a revocable trust to be revoked, usually by court
order, and causing trust assets to be paid to satisfy the
claims of the creditor. If the person in the nursing home
cannot pay for his or her care, the nursing home has the right
to claim assets to satisfy the costs of care.
A living trust will not
protect the assets of a couple against the creditors of either
of them during the life of both of them. A living trust set up
by a single person or widow will not protect his or her assets
against his or her creditors.
Under current law, a trust
might protect the assets of the first spouse to die from the
creditors of the surviving spouse, if the survivor is in a
nursing home receiving Medicaid. The State Department of
Health and Mental Hygiene, which allocates Medicaid monies for
long-term care, has introduced bills every year for the past
several years to reverse this result in certain situations.
Also, protection of the
deceased spouse’s assets from the surviving spouse’s creditors
is only accomplished if the surviving spouse has only very
limited access to the assets. This access must be only with
the permission of a third party, a result intolerable to most
The situation is not as
sinister as it sounds. If you need care, you pay for care. If
you have assets to pay for your care, the government should
not pay for your care.
Most elderly folks feel
caught in a dilemma. They are angry about the high cost of
care and afraid of total helplessness in their final stages of
life. They resent the fact that the government requires them
to spend away their children’s inheritance before "it" pays
for their care.
Of course, "it" does not pay
for their care. The government is "us," and the only place the
government gets money to pay for anything, including
nursing-home care, is from our pockets. The government can
increase taxes, or it can borrow or print more money. Either
way we pay the cost, either through more taxes or diluted
purchasing power of our savings and investments. None of these
There are only three ways you
can pay for long-term care. First, you can self-insure against
the risk of long-term care costs. You simply take the risk
that you might need care, and stand ready to pay for that care
from your own assets.
Second, you can possess
almost nothing. Medicaid, that is, taxpayers, will pay for the
care of the poor. You might be originally poor, or you might
have impoverished yourself: given everything away. The problem
with impoverishment is that you must really become poor. Most
folks don’t want to become poor just to save assets for their
children. And giving away your money to avail yourself of
Medicaid will likely disqualify you from the very provision
Third, if you have assets to
protect, you can take out a policy of long-term care
insurance, using the law of large numbers to spread the risk
of the cost of care. This author believes that this approach
is more responsible than giving away your assets and expecting
taxpayers to foot your bill.
While estate planning and
asset protection are sometimes accomplished with the same
vehicle, in this case they are not. Forethought requires
estate planning with a trust, and asset protection planning
with long-term care insurance.