I recently met with a woman (and her son) whose situation illustrate's the need to avoid cookie cutter estate, one size fits all estate planning.
The mother was widowed. She is healthy, living on her own in the house she shared with her husband for many decades. The is comfortable financially with significant savings in addition to the home, but by no means wealthy. Her four children all have families of their own and they and their spouses have good jobs, so they don't need her financial support.
The issue my client and her son presented on coming in was whether the mom should put her home, and perhaps some of her savings, into an irrevocable trust in order to protect them in the event she needs long-term care. She also expressed her steadfast wish to stay at home.
I explained that if you do not have long-term care insurance, for the most part you will need to pay for long-term care out-of-pocket. MassHealth will cover nursing home care and some home care after you have run out of savings, but the home care coverage generally is not complete. It will only supplement what you pay for yourself.
The purpose of an irrevocable trust is to shelter assets that are placed into it so that they don't have to be spent down before qualifying for MassHealth. In terms of a home, it permits it to be sold and the proceeds protected and it protects the home from the state's claim for reimbursement upon the death of the MassHealth beneficiary.
There are two principal trade offs for placing assets into an irrevocable trust. The first is that you make yourself ineligible for MassHealth coverage of nursing home care for the subsequent five years -- the so-called "look back" period. The second, which was of more importance for my client, was that it renders the assets unavailable. They cannot be used to pay for the grantor's care, and in the case of the home, the trust makes it impossible to borrow funds on the home equity to pay for care.
For many of our clients, these trade offs are well worth it. Their primary concern is protecting assets for their children and grandchildren, and they always keep substantial assets out of trust to pay for their anticipated needs.
But for my recent client, her major concern is staying at home. While she has significant savings, the cost of care is so high that she could run through everything in a few years. Then, she would want to be able to tap into the equity in her home to be able continue to live there. This being more important that preserving assets for her children and grandchildren, she wisely chose not to transfer her home into an irrevocable trust.