For many families, the home is their largest and most meaningful asset. It represents a lifetime of work and is often what parents hope to pass on to their children. Unfortunately, rising long-term care costs put that goal at serious risk. In New Jersey, nursing home care now commonly costs between $12,000 and $17,000 per month. Assisted living can range from $8,000 to $14,000 per month, and even a live-in home health aide can cost around $9,000 per month. At these rates, it does not take long for savings and home equity to be consumed.
One of the most effective legal tools available to homeowners aged 70 or older is placing the home into a properly drafted irrevocable trust as part of a long-term care and Medicaid planning strategy.
How an Irrevocable Trust Works
When you transfer your home into an irrevocable trust, you are removing legal ownership of the property from your personal name and placing it under the protection of the trust. This is important because Medicaid eligibility rules limit how much property and savings a person may own while still qualifying for benefits.
By transferring the home into an irrevocable trust, you begin the five-year Medicaid lookback period. Once that five-year period has passed, the home is generally protected from being counted as an available asset for nursing home costs, while you may still retain the right to live in the home for the rest of your life. This allows many seniors to plan ahead instead of waiting for a crisis, when options may be far more limited.
Protection from Your Children’s Financial Problems
A professionally designed irrevocable trust can also include a spendthrift provision, which protects trust assets from the problems of your beneficiaries. Even though your children may ultimately inherit the house, the trust can shield it from: Creditors, Lawsuits, Bankruptcy, Divorce. Without this protection, a child’s divorce or financial trouble could put the family home at risk. With a properly drafted trust, the home can remain protected within the family.
Preserving Valuable Tax and Benefit Advantages
Many people worry that transferring a home into a trust will cause them to lose tax benefits or create capital gains tax problems. When structured correctly, the trust and deed can be drafted to preserve important advantages, including: A step-up in cost basis at death, which can greatly reduce or eliminate capital gains tax if the home is later sold; Continued eligibility for the ANCHOR property tax rebate; Preservation of certain veterans’ benefits; Continued qualification for the senior property tax freeze.
These benefits depend entirely on how the trust and deed are drafted. Poor drafting can cause serious financial harm. Proper drafting can preserve these protections.
Planning Before a Crisis Matters
The ideal time to place a home into an irrevocable trust is before a health crisis occurs. Once someone enters a nursing home or needs full-time care, planning options may become limited or unavailable. Starting the five-year lookback clock early can mean the difference between preserving a home for your family or losing it to long-term care costs. For homeowners over age 70, this strategy can provide peace of mind, asset protection, and financial security for the future.