Clients often tell me they want to put all their assets in a trust to protect them in case they need to go to a nursing home.  Given the high cost of long-term care, this is a valid concern and there are situations when an irrevocable trust for asset protection purposes makes sense.  However, using an irrevocable trust can be one of those situations where the “cure” is sometimes worse than the disease. Here are five reasons to tread carefully when considering transferring assets to an irrevocable trust for long-term care protection purposes.

1. For married couples, there are better ways to protect assets.   When I represent a married couple for estate and long-term care planning, my goal is to make sure they are able to take care of themselves and each other.  In Massachusetts, if a member of a married couple requires nursing home care and needs to qualify for Medicaid benefits to pay for that care, there are protections in place that allow the spouse who is living in the community to keep all or most of the couple’s assets.  However, those protections can be forfeited if the couple transfers assets to an irrevocable trust (or to children) within the five-year period preceding the need for care.  That is because there is a five-year  ineligibility period for long-term Medicaid benefits following the transfer of assets to an irrevocable trust (or to any person other than a spouse).  For many married couples, it is far better not to transfer assets to an irrevocable trust so that if one spouse does need long-term nursing home care, the spouse at home can take full advantage of the laws that  offer financial protections to the community spouse.
2. There’s no guaranty the trust will accomplish your goals.  Federal and state laws,  state regulations, and agency policies govern Medicaid eligibility.  These rules change frequently, usually with no “grandfathering” for planning undertaken prior to the change.  When considering whether to transfer assets to an irrevocable trust to preserve those assets from having to be spent down on long-term care costs, it is important to remember that the law in effect today is unlikely to be the law in effect after the five-year ineligibility period has expired.  A person who is applying for Medicaid benefits must disclose the existence of an irrevocable trust on the application,  Currently, many Medicaid applications that report such trusts are being routinely denied by MassHealth, the agency that administers the Medicaid program in Massachusetts.
3. Despite what you hear on the radio, you  do give up control.   We have all heard the advertising on the radio claiming that a person can retain control over her assets while still protecting them from the high cost of a nursing home.  In order to effectively protect assets in Massachusetts, an irrevocable trust that  is intended to preserve assets from having to be spent down on long-term care costs must not allow for any distributions of principal from the trust to the person whose assets are funded into the trust, including distributions that might pay for home care or assisted living.  In addition, when the intent is to preserve the assets from having to be spent down on long-term care costs, it is prudent to name someone other than the person creating the trust as the trustee.  The trustee is the person who is in control of determining how to invest the trust assets, when to sell trust assets (including real estate held in the name of the trust), and is the only  one with access to the trust accounts.
4. Things change.   Although there are not too many things you can rely on in life, one thing you can be certain of is that things will change.  I can’t count the number of times clients have made statements like, “We’re never going to sell the house” or “I know I can count on my daughter Mary to be there for me,” only to call me a few years later to tell me they are selling their home or that Mary had a mid-life crisis and has moved to Australia to farm sheep!  The point is, no one knows what the future holds and positioning yourself to maximize your options is prudent.  Unfortunately, the provisions which estate planning and elder law attorneys have traditionally used to build flexibility into irrevocable trusts are the very provisions  that MassHealth is now using to claim that the trust assets are available to be used to pay for long-term care.
5. The best way to ensure you end up in a nursing home is to have no money.  One of my favorite sayings to clients is “money buys you options.”  If a person has savings, CDs, retirement accounts, investments, or real estate available to her, she can choose to remain at home and pay for help to allow her to remain there, she can choose to go to assisted living and pay for additional assistance if she needs it, she can choose to modify her home to accommodate her needs, etc.  A person who has no resources usually has only one option — go into a nursing home.  The reason for this is that Medicaid will pay for 24/7 care for a person with no assets who is a nursing home resident.  Medicaid does not pay for assisted living or round-the-clock care at home for (most) elders who need such care.  Most of my clients would rather be at home than in a nursing home, and for this reason transferring assets out of their ownership and control and into an irrevocable trust in order to “protect” them often results in the client ending up in a nursing home rather than at home where they would prefer to be.

While there certainly are situations where transferring assets to an irrevocable trust for long-term care planning purposes makes sense, it is never a good idea to rush into this type of planning without having a complete understanding of the consequences.  An experienced elder law attorney can advise you about the pros and cons of using an irrevocable trust for long-term care planning in your particular circumstances.

November 2013

Attorney Suzanne R. Sayward is certified as an Elder Law Attorney by the National Elder Law Foundation, a private organization whose standards for certification are not regulated by the Commonwealth of Massachusetts.  She is a partner with the Dedham firm of Samuel, Sayward & Baler LLC.  This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information visit www.ssbllc.com or call 781/461-1020.