The Irrevocable Trust: The Antidote to Nursing Home Spend-Down

You don’t need us to tell you that nursing home care is expensive. And we understand that you want to avoid paying these costs out of your own savings if possible. One approach is the irrevocable trust. The LAST Trust is our name for an irrevocable trust that protects estates against nursing home spend-down. It stands for Legacy Asset Savings Trust – saving some of your legacy for your spouse and family.

But won’t I lose control with an irrevocable trust?

Irrevocable trustsA trust that cannot be revoked by the Grantor. Irrevocable trusts are created to either save taxes or protect assets, or both. More give clients the ability to move assets (real estate and/or cash or non-IRA investments) into trusts but keep limited input in a few, carefully placed instances; trustees can be changed and even the ultimate beneficiaries can be updated if you don’t like your original choices or want to add beneficiaries, like grandchildren.

You could move your house into a LAST Trust and still use the house for life. Tax advantages of homeownership are not lost with a properly drawn irrevocable trust. A home held in this trust can be sold and the proceeds reinvested in another home or senior living arrangement. Excess proceeds would stay in the trust and be invested. More than one property at a time can be transferred to a LAST Trust.

So what control do I lose?

Borrowing against assets inside irrevocable trustsA trust that cannot be revoked by the Grantor. Irrevocable trusts are created to either save taxes or protect assets, or both. More, such as taking a home equity line of credit if your home is in a LAST Trust, is problematic because lenders do not like to lend on properties in irrevocable trustsA trust that cannot be revoked by the Grantor. Irrevocable trusts are created to either save taxes or protect assets, or both. More as a rule.

LAST Trusts, being irrevocable, mean you lose control over payments of principal from the trust. Trust principal can only be paid out at the direction of a trustee other than you while you are living. Investment decisions can be made by the trustees with some input from you, but you cannot be totally in charge of the investment decisions once you have given up being the trustee (which is recommended).

When does this trust need to be in place to be effective?

When making transfers into the LAST Trust, unless an exception applies, it is helpful if the trust is done five or more years before one enters a nursing home in order to result in the desired protection. However, if there are assets outside of the trust to pay your nursing home bills until the five years have expired, then you can enter the nursing home paying privately before the end of five years, spend your money, then apply for Medicaid once the five years has expired. For example, say you have enough to pay for two years of care, then you could enter the nursing home after only three years into the trust because you are going to pay for the final two out of pocket anyway.

At the end of the five years under current law, you should not have to count the assets in the trust as money or property that are required to be spent on your care. This is how assets can be saved for your legacy with the LAST Trust™.

What Happens to the Assets in the Trust Upon Death?

When you die, the house, money, investments, or any other assets in the irrevocable trust will pass directly to your children or heirs free of probateProbate can refer to the process of settling the estate of a deceased person. Read More and free of a Medicaid lien. The LAST Trust is capable of helping to save estate taxes, and protecting the heirs’ inheritance against their creditors, as well.

There are good reasons to select the LAST Trust, but there are also good reasons to select other trusts, based on your specific circumstances. Check out our blog, the Differences Between a Revocable and Irrevocable Trust to learn about different trusts and the purposes they serve.