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 surviving spouses.

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 is appealing.

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 you sought.

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.