How Irrevocable Trusts Can Help You Even When You Do Not Have Much Wealth

By Daniel A. Perry, Esq.

I have heard the statement many times, “I don’t need a trust and you can’t help my situation because I don’t have much money.” However, even for those who do not have much wealth, irrevocable trusts can be an important tool in protecting the largest assets that any of us may own.

For many of us, our home is the most expensive and largest asset. However, if you are not careful, the state can take your home after you are gone, and a home that was supposed to be sold after your death and go to your children, will instead be sold and the proceeds given to the state.

What I am referring to is nursing home poverty and affording your future nursing home costs. If you go into a nursing home and apply for Medicaid benefits, the Medicaid application will ask you to disclose all of your assets in your name and all sources of income. If you own anything more than a home, a car, a prepaid funeral, and $2000, then Medicaid has determined that you can pay for your own nursing home costs and you will be required to pay until you have no more than the assets listed above. Once you spend down all of your assets, then you will qualify for Medicaid and they will pay your nursing home expenses.

Protect Your Home From Estate Recovery Claim

If you do not have much wealth you may be thinking, “That’s not so bad. In my situation, I’ll spend $50,000 or so on my nursing home cost and then Medicaid will start paying. I will still have my home, my car, and other personal property to pass on to my children after I’m gone.”

However, once you die, the state will file an estate recovery claim seeking reimbursement of all the costs that were paid out during your lifetime while you were in the nursing home. You see, although you can qualify for Medicaid and Medicaid will start paying your nursing home expenses, after you die, Medicaid will ask your surviving family members for this money back. Now, your surviving family members will not be personally liable. However, the state can force the sale of your largest remaining asset, your home, and seek reimbursement of their costs out of the proceeds of the sale of your home.

This could potentially leave your surviving family members with an insolvent estate where they will receive nothing after you gone.

However, even for families where their largest asset is their home, an irrevocable trust could be a smart strategy to protect the home from an estate recovery claim. This type of strategy is commonly referred to as an Irrevocable Medicaid Trust. Irrevocable trusts can be used as a means of transferring your home and other assets into the name of this trust. So long as this trust was created more than five years prior to going into the nursing home, after you die, your assets, including your home, will pass directly to your surviving children. Because of this Trust, the state will be unable to pursue their estate recovery claim.

For More Information

If you have questions regarding irrevocable trusts and the best estate planning strategy for you and your family, then please contact our office at (513) 241-0400 or use our contact form to schedule a time to discuss your legal questions with one of our attorneys. 

We look forward to hearing from you!