If you’re considering setting up a trust to protect your assets, you’re not alone. Many people in or near retirement believe a trust is the best way to protect their life savings, especially if long-term care becomes necessary. Some lawyers will push you toward a revocable trust, claiming that it’s all you need. But before you sign anything, it’s worth taking a closer look at what a revocable trust actually does and doesn’t do.
What a Revocable Trust Is Actually For
A revocable trust is a helpful estate planning tool. Its main job is to make things easier for your loved ones after you pass away. When done correctly, a revocable trust can help your family avoid probate, reduce legal headaches, and make sure your wishes are carried out smoothly. It can also help protect your beneficiaries, especially if a surviving spouse needs nursing home care or your children are going through a divorce.
What it doesn’t do, though, is protect your assets during your lifetime. If you’re counting on a revocable trust to protect you from losing your home or savings to long-term care costs, that’s not what it’s designed to do. You still own everything in that trust during your lifetime, and that ownership matters. If you enter a nursing home, those assets are still considered yours for Medicaid purposes.
What Actually Protects You During Your Lifetime
Three things offer lifetime asset protection, and the type of trust you have isn’t one of them. The first is the type of asset you own. As long as you keep ownership, many common assets are already protected under the law. The second is ownership itself. If you retain ownership of your assets, you don’t face penalties, delays, or the need to ask someone else for permission to use your money. The third is access. You should always be able to use your assets without jumping through hoops.
An irrevocable trust that takes assets out of your ownership can offer some long-term care protection, but it comes with big trade-offs. You give up access and control, and you may still face a Medicaid penalty if the trust was set up less than five years before you need care. Even after those five years, you still don’t own your home or savings anymore. That may not feel like protection at all.
Giving up ownership is often presented as the only way to protect assets, but that advice leaves out important details. For many people, the better option is to understand which assets are already protected and work with a plan that keeps them in control.
At J. Kevin Tharpe, PC, we take the time to explain what your documents do and don’t. If you’re concerned about long-term care or want a plan that protects your assets and your independence, contact us today.
Kevin Tharpe
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