Trusts are commonly used in estate planning for a myriad of reasons, like avoiding probate or ensuring assets are managed for beneficiaries. However, certain trusts are also useful tools in planning for long-term care.
The monthly cost of nursing home care in North Carolina can easily exceed $8,000 to $10,000. These nursing home costs can impoverish even the most fiscally responsible families. Many families prefer to avoid spending all their hard-earned money on nursing home care. This can be particularly important to a family hoping a spouse will also be able to reserve significant funds as they grow older.
With advanced planning, trusts are the foundation for a secure long-term care plan that: (1) ensures assets are preserved for the future needs of a spouse or to leave a legacy gift to loved ones; (2) assists family members in qualifying for public benefits; and (3) protects assets from expected or unexpected nursing home costs.
Generally, trusts used for long-term care planning are drafted to be irrevocable and cannot be amended or revoked. When a trust is created, assets the grantor seeks to protect are transferred into the trust and retitled in the name of the trust. Any assets transferred into the irrevocable trust are no longer assets that are available to the grantor (the person who funds the trust).
Ideally, the grantor makes a gift of these assets to the trust in return for an expected stream of income. The grantor is then entitled to receive all income or dividends generated by the trust assets. However, with a properly drafted irrevocable trust, the grantor cannot directly receive principal from the trust. If the principal were directly accessible, then the grantor would not be eligible to receive Medicaid. In this manner, trust assets can be preserved for a spouse or for future generations while still providing a regular stream of income to the grantor and also allowing the grantor to eventually qualify for public benefits.
An irrevocable trust can be used to shelter real estate and other investments, or just real estate only. In many cases, when real estate is transferred into an irrevocable trust, the grantor may retain the right to use the house or reside in the house.
In this scenario, when a home is placed in a trust, under current laws, the home is not subject to estate recovery after a Medicaid recipient passes away. In sum, the home or other real estate can be passed along to loved ones instead of being sold to repay Medicaid for any nursing home care.
Implementing trust strategies for long-term care planning is a complex process that varies by state. Further, every family has unique circumstances, which is why an experienced elder law attorney is needed to make a competent evaluation. With advance planning and careful guidance from an elder law attorney, families can learn whether an irrevocable trust is an appropriate long-term care plan for their own unique circumstances.
Andrew Olsen is an attorney in the CSH Law Elder Law Practice Group in Wilmington, NC, where he practices in the areas of elder law, estate planning probate, guardianship, alternative dispute resolution, estate and trust litigation, special needs planning and veteran’s benefits. To contact Olsen, call (910) 777-5733 or email him at [email protected].