Do living trusts provide protection from creditors, such as Medicaid?
The answer is no. Since the trust is revocable by the grantor, the grantor’s creditors can reach its assets during the grantor’s lifetime, and the assets of the trust are also subject to the payment of the grantor’s debts which are existent at his or her death. In fact, some states permit a deceased person’s creditors to go after the assets of his or her living trust at any time, but limit the time during which a creditor may file a claim against those same assets, if held in the person’s own name and thus passing via his or her Will, to not more than a specified number of months (not years) after the publication of an appropriate notice to creditors. Thus, for clients who may have creditors with claims against them, it may be detrimental, rather than beneficial, to rely upon a living trust as opposed to a Will. Under Medicaid rules, the assets held in a grantor’s living trust are not protected, and usually must be used to pay the grantor’s expenses to the same extent as if the grantor
