FAQs

A revocable trust does not provide asset protection because the creator of the trust retains the right to amend or terminate the trust at any time. A creditor could therefore force you to distribute assets from the trust to satisfy any claims. Revocable trust are most useful for estate tax planning and avoiding probate, not asset protection.

Because the creator of an irrevocable trust typically surrenders the right to terminate or amend the instrument, a future creditor generally cannot collect against the trust, at least to the extent that trust distributions to the creator are limited. Irrevocable trusts are very useful in MassHealth planning when attempting to shelter assets from nursing home costs. They are also useful when attempting to safeguard assets from the creditors of named beneficiaries. For example, an irrevocable trust can be used to ensure that a child’s inheritance is not lost if that child gets divorced.  

Qualified retirement accounts are generally protected from seizure by creditors under the Employee Retirement Income Security Act (ERISA). ERISA protects most employer-sponsored retirement plans, such as 401(k) plans. Non-qualified retirement accounts, such as IRA’s and Roth IRA’s, are not protected by ERISA, though they have limited protection (generally up to $1 million) under the 2005 Bankruptcy Abuse and Consumer Protection Act. Significantly, in Massachusetts, retirement plans are generally treated as a countable resource for determining MassHealth eligibility for nursing home benefits. 

Medicare only provides limited coverage for nursing home care. There are many exceptions, but generally Medicare will only pay for up to 100 days of nursing home care so long as the move to a qualified nursing home was preceded by a hospitalization of at least three days and the patient requires nursing home level care.  

Many couples in this situation apply for Medicaid benefits. In Massachusetts, Medicaid is administered by MassHealth. In order to qualify for MassHealth nursing home benefits, an individual may only have $2,000 in countable assets. For married couples, the institutionalized spouse may only have $2,000 in assets and the community spouse may only retain a certain amount of countable assets, called the Community Spouse Resource Allowance (CSRA), which is adjusted yearly. As of 2023, the CSRA is $148,620. 

For those seeking MassHealth coverage of nursing home care, the agency generally reviews any transfers of assets for less than fair market value going back five years from the date of the application. Any such transfers may be deemed disqualifying, which will result in a penalty period being imposed on benefit eligibility.

MassHealth calculates the period ineligibility by dividing the total value of the disqualifying transfers by the average monthly cost of a private patient receiving nursing home case in Massachusetts at the time of the application, as determined by the agency. For example, if a community spouse gifted $150,000 to a child within the 5 year look back period and the average cost of nursing home care was $15,000 at that time, MassHealth would impose a 10 month period of ineligibility. 

The home of a MassHealth applicant or spouse is generally considered a noncountable asset, so long as the equity in the home is under a certain limit. As of 2021, that limit is $906,000. However, MassHealth will place a lien on the home to recover for benefits paid. The lien must be satisfied in order to sell the home. For many married couples, the lien is paid following the death of the second spouse, when the home is sold during estate administration.

Insurers offer long term care policies and life insurance policies with long term care riders to protect against these costs. However, such policies are not inexpensive and the applicant must pass medical underwriting in order to qualify. Note that long term care insurance that generally provides at least $125 per day of nursing home coverage for at least 2 years with an elimination period (days services are provided before benefits “kick in”) of not more than 1 year will protect the home from a MassHealth lien.

A properly constructed Medicaid Asset Protection Trust, a type of irrevocable trust, can be used to protect assets from nursing home costs. After 5 years have passed, any assets placed into such a trust are not countable when determining eligibility.