This Trust Can Protect Your Assets From Long-Term Care Costs

A Medicaid asset protection trust can help ensure your protected assets go to your beneficiaries rather than your long-term care, but it has to be set up properly.

By Joe F. Schmitz Jr., CFP®, ChFC®, CKA®

published 11 July 2024

in Features

A piggy bank under a tilted umbrella — (Image credit: Getty Images)

Are you concerned about the rising cost of long-term care? Are you worried about not being able to leave your spouse or kids the assets that you’ve worked so hard to save? If so, then I'm going to share a solution to help you better plan for this big risk in retirement.

As we all know, long-term care costs are one of the biggest risks in retirement. Three of my four grandparents have needed long-term care, and the experience has been hard — not only emotionally but also financially. The cost of long-term care can be anywhere from $50,000 to $100,000 a year, depending on your location and the type of care. The average stay can be anywhere from two to five years, so that length affects the overall financial impact.

Knowing that 70% of people will need long-term care at some point in their retirement means that it is especially important for you to plan for. The only problem is — how do we plan for such costs, especially when long-term care insurance is so expensive? Add to that the fact that we have to be insurable to be able to get it. So, instead, let's talk about another option that may be attractive to some people.

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The opportunity is called a Medicaid asset protection trust. The idea of this is to move money out of your estate into this type of trust so that the government cannot come after it for Medicaid planning purposes. Let's take a step back to understand how Medicaid planning works. The government will offer you free long-term care assistance after you spend down the majority of your assets. The good news is that you get the care you need. The bad news? You lose what you have worked so hard for. So how do we ensure we get the care we need but also protect what we've worked hard for? That's where this trust comes into play.

This trust has to be set up the right way

First, we must set this trust up the right way and give it enough time to satisfy the look-back period. Then Medicaid will not consider those assets when deciding if you are eligible for Medicaid. This can be of a lot of value for those with larger amounts of non-qualified assets, such as multiple properties or non-retirement investments. The things to note with this trust is you will want to make sure it is an irrevocable trust. Now, that can be scary because an irrevocable trust typically means you have no access to those assets anymore. But if you set this trust up the right way, you can still have access to those assets.

It's important to work with an estate planning attorney who specializes in this area. For our clients, we have an attorney who meets with them at our office to ensure this gets done the right way.

You also want to make sure that you’re not getting sold this trust if you do not need it, because not everyone needs it. If you don’t have any non-qualified assets, and all of your assets are in an IRA, then it may not make sense for you. Current rules state that money in an IRA will not be spent down until after both spouses have passed. Keep in mind that these rules can change at any time, and that’s why it’s important to find an attorney that you can continue to work with to make changes to these trusts as needed.

The attorney we work with meets with our clients periodically to make any adjustments required based on rule changes as they happen. We believe preparing for this now will better set you up for success if there are rule changes in the future.

Setting one up can be costly

The other downside of this type of trust is cost. Depending on who you work with to get it done, the cost can be anywhere from $7,000 to $12,000. The attorney who works with our clients does it for a lower amount since we do not take a referral fee, and we have an exclusive relationship. You’ll likely get the best results when you work with a financial planner who partners with an estate planning attorney to ensure your trust gets done the right way, that you don't get sold something you don't need and that you get the best pricing.

Other planning advantages and opportunities

A Medicaid asset protection trust can also lead to other advantages and opportunities in other areas of planning. For example, we can also use this trust to help plan for estate taxes.

Estate taxes may not be a concern for many people, considering the current high threshold before it kicks in ($13.61 million for 2024). However, the threshold is likely to be lowered in the future. It has, in the past, been as low as $1 million or less, so it’s possible that if your net worth is more than $1 million, you could pay a 40% tax on everything above that in the future.

A Medicaid asset protection trust could help you protect some of those assets by getting them out of the estate so they’re not subject to that estate tax. We do this for many of our clients who have been diligent savers.

Also, with trusts, you can be more creative about ensuring the money goes to the people you want it to go to and when you want it to go to them. For example, if you wanted your kids to get only a certain amount each year for the rest of their lives, then you could have that set up. Or if you wanted a minor child to not get the money until the age of 25, then you could do that also. You could also ensure that if there were a divorce or one of your family members died, that the money stayed in the family.

Those can all be reasons why setting up a trust can make sense. We work with many people in or near retirement who have been diligent savers, but only about half of them need trusts. That's why it's important to do your due diligence and see if this makes sense for your specific situation.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Joe F. Schmitz Jr., CFP®, ChFC®, CKA®, is the founder and CEO of Peak Retirement Planning, Inc., which was named the No. 1 fastest-growing private company in Columbus, Ohio, by Inc. 5000 in 2025. His firm focuses on serving those in the 2% Club by providing the 5 Pillars of Pension Planning. Known as a thought leader in the industry, he is featured in TV news segments and has written three bestselling books: I Hate Taxes (request a free copy), Midwestern Millionaire (request a free copy) and The 2% Club (request a free copy).

Investment Advisory Services and Insurance Services are offered through Peak Retirement Planning, Inc., a Securities and Exchange Commission registered investment adviser able to conduct advisory services where it is registered, exempt or excluded from registration.