An irrevocable trust is the workhorse tool for shielding a home and savings from being drained by nursing home bills.
How does an irrevocable trust protect against nursing home costs?
When you transfer assets into an irrevocable trust, you legally give up ownership of them. Because you no longer own them, Medicaid doesn't count those assets when deciding if you qualify for long-term care coverage — which means they aren't spent down on nursing home bills. The trust, often called a Medicaid asset protection trust, can hold your home, savings, and investments. You typically name an adult child as trustee and can retain the right to live in your home and receive trust income. The key requirement: assets must be in the trust for at least 5 years before you apply, satisfying Medicaid's look-back.
What are the trade-offs of using an irrevocable trust?
The protection comes at a price: irrevocability. Once assets go into the trust, you generally cannot take the principal back or change the terms freely — that loss of control is exactly what makes Medicaid disregard the assets. You should fund the trust only with money you won't need to spend on daily living. A revocable living trust offers no protection, since you keep control and Medicaid still counts it. Irrevocable trusts also require an attorney to draft correctly and carry setup costs. For many families the trade-off is worth it; for others, long-term care insurance or other strategies fit better. Call 1-800-MEDIGAP to think it through.