Life expectancies are expanding, but living longer comes with some cautions. One of these is that most of us, about 70 percent according to studies, will at some point in our lives need long-term care. Beyond the healthcare implications, a long-term care event can be financially devastating. A lengthy stay in a nursing home can wipe out your life savings if not planned for accordingly. A properly constructed comprehensive financial plan will address protecting your wealth from a long-term care event.
Case in point: It was an automobile accident that alerted a woman in her ‘80s to the fact that at some point in the future she was going to need nursing home care. She lives a modest lifestyle, which includes owning a mortgage-free home, some life insurance, and now has a considerable amount of money coming her way from the accident settlement. She learned that long-term nursing care would cost her well over $100,000 a year, and would continue to grow more expensive. She was concerned that her assets would be drained by her likely need for long-term care and wanted to protect her assets to pass along to her two children.
The Financial Reality of Long-Term Care
Current Cost Breakdown by Region
The median cost of a private room in a nursing home is $361 per day or $10,965 per month in 2025, but costs vary dramatically by location:
| State/Region | Semi-Private Room (Monthly) | Private Room (Monthly) | Annual Cost (Private) |
| Most Expensive | |||
| Alaska | $31,282 | $36,378 | $436,536 |
| Connecticut | $12,500+ | $15,000+ | $180,000+ |
| New York Metro | $13,230 | $15,877 | $190,524 |
| National Average | |||
| United States | $9,555 | $10,965 | $131,583 |
| Most Affordable | |||
| Texas | $5,639 | $7,092 | $85,104 |
| Missouri | $5,262 | $5,931 | $71,172 |
| Louisiana | $5,759 | $6,060 | $72,720 |
Source: Genworth Cost of Care Survey 2025, World Population Review
Cost Projections: The Trend is Clear
If projections hold, the monthly cost of a semiprivate room in a nursing home will be over $11,000/month by 2030—a 33 percent increase from current levels. For private rooms, annual costs have already surpassed the six-figure mark in most states.
We identified three potential approaches to a solution:
| Strategy | Pros | Cons | Best For |
| Long-Term Care Insurance | • Immediate coverage
• Predictable premiums |
•Expensive at advanced age
• Health restrictions • May be denied |
Healthy individuals under 65 |
| Annual Gifting Strategy | • $19,000 per child annually
• Tax-free transfers • Gradual estate reduction |
• Slow asset protection
• Immediate loss of control • Limited annual amounts |
Long-term planners with time |
| Irrevocable Trust | • Complete asset protection after 5 years
• Income generation possible • Estate tax benefits |
• Irrevocable commitment
• 5-year waiting period • Loss of direct control |
Those with substantial assets and 5+ year planning horizon |
- She could purchase long-term care insurance, but policies are expensive, particularly at her age and given her compromised health. She likely wouldn’t be approved because of the accident.
- She could implement a gifting strategy, giving up to $19,000 per year to each of her children. These gifts would be tax-free and help reduce the value of her estate over time. They could also help her qualify for Medicaid, as long as they fall outside the five-year look-back period.
- In collaboration with her attorney, Kyle Gallo of MacDonald, Illig, Jones & Britton LLP, we implemented a third option: a strategic estate plan using an irrevocable trust. By transferring ownership of certain assets into the trust, those assets are removed from her estate for both tax and Medicaid planning purposes—provided the transfer occurs at least five years before applying for Medicaid, in accordance with the look-back period. While she no longer owns the assets, the trust can be structured to provide her with income during her lifetime. Upon her passing, the assets can pass to her heirs without being subject to estate taxes. However, any appreciation in value from the time the assets were placed in the trust may be subject to capital gains taxes if and when the heirs sell them.
Concerns and considerations
“Protecting assets with an irrevocable trust requires a lot of foresight in planning because of the Medicaid five-year look-back period,” Gallo said. “If the individual passes away prior to five years after the transfer date, the assets will be protected from other creditors, but there will no longer be benefits related to Medicaid. Five years and one day after assets are transferred to the trust, the individual may apply for Medicaid and the transferred assets will not count towards the individual’s countable assets. Additionally, the Department of Human Services will not be able to recover Medicaid expenses from those assets after death. A lot can happen in five years, so there are several uncertainties, including if the individual never has to apply for Medicaid or enter a nursing home.”
Understanding the Five-Year Medicaid Look-Back Period
Timeline Visualization
Year 1: Asset Transfer to Irrevocable Trust
├── Month 1-12: Assets legally transferred, no Medicaid protection yet
│
Year 2-4: Waiting Period
├── Assets continue to grow in trust, still vulnerable to Medicaid Estate recovery
│
Year 5: Protection Begins
├── Month 60+: Assets now protected from Medicaid asset limits
│
Future: Full Protection
└── Assets secure for beneficiaries, Medicaid qualification possible
Critical Point: The five-year clock starts ticking from the moment assets are transferred to the trust, not when you apply for Medicaid.
While a personal residence is exempt from the Medicaid qualification formula, other assets, including IRAs are vulnerable during life. “One strategy prior to applying for Medicaid is to take annual distributions from your IRA, while remaining in the lower tax brackets and transfer the cash to the irrevocable trust. The goal is to get as much money as possible, based on the plan with your financial advisor, into the irrevocable trust five years and one day before you apply for Medicaid,” Gallo said. “Conversely, it may make sense to distribute everything from an IRA at once, pay all the income tax due, transfer the cash to the irrevocable trust and start the five-year look-back as soon as possible.”
One common concern among those considering an irrevocable trust is their finality. “You have to be willing to give up control of the assets you put into the trust,” Gallo said. Many people, understandably, are hesitant.
That’s the work of the planning team. How much and which assets to assign where and how? The options are many; the solution must meet the unique needs of the client.
Ready to Protect Your Legacy?
While we were able to construct a solution for this woman, her case emphasizes the need to start financial planning, including estate planning, earlier in life. You can start with a will and a power-of-attorney agreement, then explore trusts and long-term care insurance as your career and ability to afford additional protections evolve.
Estate planning isn’t about paranoia or fear, but having a plan in place that gives you peace of mind. A properly developed estate plan will keep a long-term event from wiping out all you’ve worked for, spare your loved ones from tough decisions during emotional times, and prevent unanticipated costs from destroying your legacy.
We’re here to help. If you have questions about comprehensive wealth management planning, including estate planning, call me 814-836-5776, or email me at ggallagher@hbkswealth.com.
Frequently Asked Questions
Q: What happens if I need the money I put in the trust?
A: The trust can be structured to provide you with income during your lifetime. However, you cannot access the principal directly. This is why careful planning of which assets to transfer is crucial.
Q: Can I change my mind about the trust?
A: No, irrevocable trusts cannot be easily modified or revoked. This is precisely why they offer asset protection—you’ve legally given up ownership.
Q: What if I never need long-term care?
A: The trust still provides estate tax benefits and ensures assets pass efficiently to your beneficiaries. It’s insurance against a risk that affects 70 percent of seniors.
Q: How much should I transfer to the trust?
A: This depends on your total assets, income needs, and family situation. Generally, transfer enough to protect your legacy while retaining sufficient assets for your lifetime needs.
Q: When should I start this planning?
A: Ideally, before you need care. The five-year look-back period means early planning is essential. Many experts recommend starting these conversations in your 60s or early 70s.
Important Disclosure:
The information and examples included in this document are for general, educational, and informational purposes only. It does not contain any financial or investment advice and does not address any individual facts and circumstances. As such, it cannot be relied on as providing any financial or investment advice. If you would like financial or investment advice regarding your specific facts and circumstances, please contact a qualified financial advisor.
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