When a family member needs long-term care, the family has many concerns, not the least of which is the cost of the care and their ability to pay those costs. Care in a nursing home costs anywhere from $10,000 to $15,000 a month. Care in an assisted living residence costs anywhere from $6,000 to $15,000 a month. A home health aide can cost $35 an hour, with a live-in aide costing $7,500 a month plus room and board. With costs such as these, it is easy to see how the average person could bankrupt herself paying for long-term care costs.

There is a government program that will pay for many of the costs associated with long-term care, the Medicaid program. In fact, the Medicaid program is the primary payor of long-term care in the United States. If a person qualifies for Medicaid, Medicaid will pay for the nursing home, Medicaid will pay for an assisted living residence, and Medicaid will pay for a home health aide.

In order to qualify for Medicaid, a person must have insufficient income with which to pay for her care, and she must own a limited amount of assets. For this reason, clients of mine often ask me to assist them with protecting their assets from potential long-term care costs. The client is uncertain if she will ever need long-term care; she hopes that she will never need long-term care; but she is concerned that some day she might need care.

Assume the following facts:  Mrs. Smith, aged seventy, in good health, has four children. Her husband has passed away. She owns a house, worth approximately $400,000, in which she has lived for twenty-five years. She has approximately $250,000 in bank accounts and stocks. Mrs. Smith’s four children get along with one another. She intends to continue living in her home.

I suggest that Mrs. Smith permit me to draft a financial power of attorney and advanced health care directive for her. In this way, if she is unable to make decisions for herself at some future point in time, one of her children will be able to make decisions for her.

I also suggest that Mrs. Smith transfer ownership of her house to an irrevocable trust of which all four of her children are the beneficiaries. Two of her children will serve as trustees of the trust. Mrs. Smith is in no way a beneficiary of the trust, and she can never serve as the trustee of the trust.

An irrevocable trust is a trust the terms of which cannot be changed. Mrs. Smith cannot revoke the trust.

In the deed, Mrs. Smith reserves for herself the right to live in the house for the remainder of her life and the obligation to pay all of the costs (real estate taxes, utilities, homeowner’s insurance) associated with the house. From a practical standpoint, despite the fact that Mrs. Smith has transferred ownership of the house to the trust of which her children are the beneficiaries and trustees, Mrs. Smith retains the practical benefits of ownership—the right to live in the house and the obligations to pay the expenses associated with the house.

The trust protects the house from any potential issue any one of Mrs. Smith’s four children may have. In other words, if any of her children were sued or embroiled in a divorce, those personal problems would not affect Mrs. Smith’s house and her right to live in the house. If one of Mrs. Smith’s children died, that child’s share would pass to Mrs. Smith’s other children or Mrs. Smith’s grandchildren, not the deceased child’s spouse. In this way, Mrs. Smith is preserving the house for her children.

But what if Mrs. Smith gets sick and moves out of the house, entering a nursing home? Can the house be sold? The answer is yes. The Trustees can sell the house. The proceeds from the sale of the house would go into a financial account that the trust owns and can be invested anyway the trustees decide. The Trustees could invest the money in another house, in bank accounts, in stocks, in bonds, etc. A Trust can invest assets anyway in which a person can invest assets.

Sometimes people ask me, why doesn’t everyone do this? The answer to that question is too difficult to answer as everyone has their own reasons. I have done this planning for hundreds of clients and protected many, many houses from long-term care costs. I protected my parents’ house from long-term care and my parents needed eight years of care in nursing homes before they passed away.