Jane called and asked me whether she should set up a trust and, if so, what kind should it be. Jane went on to add that she was concerned about probate and the cost of nursing home care. Jane owns a home in her own name and CDs and stock accounts of about $250,000. She also has a long term care insurance policy.

I explained to Jane that if she is concerned about the potential cost of nursing home care she should consider an irrevocable Trust. Under the Medicaid rules, any transfer for no consideration is a "disqualifying transfer" and triggers a five-year look-back. If Jane were to transfer her home and her other assets to an irrevocable trust, she would lose control of the assets. While she could continue to reside in her home for as long as she lives, she herself would not be able to sell it. The trust would have to provide that she be entitled only to the income from the trust and not the principal. Jane would not be able to be the trustee of her trust. Upon her death, the trust assets would pass to her named beneficiaries and would thus avoid probate; but once set up, Jane would not be able to change the beneficiaries or the amounts each would receive, except under certain circumstances. Even worse, and depending upon how the trust is drawn up, if Jane needs nursing home care prior to the expiration of the five year period following the gift to the trust, Jane may not be able to "cure" the disqualifying transfer since she would have no control over the assets.

Where Jane owns a long term care insurance policy, she may not need an irrevocable trust. In this instance, a trust that avoids probate would suffice nicely. This type of trust would be revocable living trust and Jane could always maintain the control, and use of, the assets in the trust. Jane could change the beneficiary names and amounts at any time. At Jane's death, the assets in the trust would avoid probate.

Jane could also create a trust under her last will and testament (a testamentary trust). This type of trust would not be funded while Jane was living and thus would not avoid probate. The advantage however would be that the probate court would supervise the actions of the trustee and ensure that all of the assets were properly accounted for and that the beneficiaries received what they were promised.

LESSON: A trust is a complex legal document that can accomplish a number of different outcomes depending upon the client's fact and circumstances. You should always consult with an elder law attorney when considering drawing up a trust.

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