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Nursing Home Protections and the Strategic Gift Trust™

By: Atty. Sam Collins

Key Takeaways:

  • Revocable living trusts do not protect assets from nursing home costs. While they can be a good estate planning tool, they won’t shield your assets if you need long-term care.
  • Strategic Gift Trusts (SGTs) can protect assets from nursing homes. By transferring assets to an SGT, you give up control, but the assets become unavailable to you and therefore cannot be used to pay for nursing home care.
  • SGTs are not for everyone. There are limitations to consider. You give up control of the assets, and there’s a waiting period (typically 5 years) before the protection goes into effect. SGTs are best suited for people who want to protect specific assets, are comfortable giving up some control, and are concerned about the rising costs of long-term care.

Our clients often ask about planning strategies to protect certain assets from the nursing home.  The costs of long-term nursing home care have been on the rise.  Recent data published by the American Council on Aging shows the average annual cost of nursing home in a shared room is $94,000 a year.  A prolonged nursing home stay often pressures people to sell assets against their intentions, only to use that money to pay the exorbitant bill.  The technical term for liquifying assets to pay for care is “spend down.” 

Do trusts protect against spend down?  Some do, some don’t.  Our clients all know that while living, a revocable living trust offers the trust maker no asset protection.  The world would be judgment proof if they did, and as we all know, it isn’t!  In a well drafted plan, asset protection can be built in for future beneficiaries after the trust maker’s death – that’s a good idea in just about every plan.  But that does the trust maker little good to guard against threats to themselves.  To guard assets against spend down or claims from your one’s own liability – such as a prolonged nursing home stay – the person can’t own them.  But a special form of irrevocable trust can:  the Strategic Gift Trust™ (SGT). 

In the literature these trusts are often referred to as 5-Year Trusts or Medicaid Trusts.  For this type of planning to work, you must let go of some control (trusteeship).  We call them strategic because there’s strategy involved when deciding what you want to protect and who you want in control.  For example, you would never transfer everything you own to a SGT.  After you transfer an asset into the SGT, you cannot take it back out – the principal is unavailable to you.  But that’s the very feature that makes it work:  if you can’t take it back out, the nursing home can’t force you to one day.  The trustee (or trustees) can be family, but not a spouse.  Generally, an SGT allows you to keep the trust’s income so an annual trust tax return is not necessary.  An SGT is not a last-minute solution available at the nursing home’s doorstep because the assets aren’t fully protected until 5 years after the gifts are made.

A Strategic Gift Trust is not for everyone.  But if you view the rising costs of long-term care as a potential threat to your estate, don’t mind letting go of some control, and have specific assets that you want to protect if that happens, it may be another layer to consider adding to your overall plan.

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