My new client was recently widowed. She is healthy, living on her own in the house she shared with her husband for many decades. She 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.
I met with her and her son. They asked 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.
The Pros and Cons of an Irrevocable Trust
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 provides two protections. First, if the property is sold during the mother's life, the proceeds will be protected. Second, it protects the home from the state's claim for reimbursement upon the mother's death.
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, is 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.
Make Sure You Know Your Clients' Priorities
For my recent client, her major concern is staying at home. While she has significant savings, the cost of care could be so high that she would 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 to her than preserving assets for her children and grandchildren, she wisely chose not to transfer her home into an irrevocable trust.
Another client, perhaps with children more in need of her support, may have come to a different conclusion and have acted to protect the property. Neither decision is right or wrong as a matter of course. The role of the attorney is to explain the options to the client and to determine with her what the right decision is for her. (This often means asking the other family member or members to leave the room so that the attorney can speak confidentially with the client without the presence of others who may have a vested interest in one choice or another.)