Long-Term Care Insurance Vs. Irrevocable Trust

Long-term care insurance policies and irrevocable trusts are financial tools that individuals often employ when planning for their later years. Both vehicles serve to address issues that arise for seniors. Long-term care insurance targets the costs of long-term health care needs, providing benefits that help seniors afford care without sapping their savings. An irrevocable trust is a form of trust that enables someone to leave their assets to individuals and institutions with some tax and other advantages.


Long-term care can take a range of forms, such as an assisted living center, a nursing home, a home-health-care aide and adult day care. Long-term care insurance benefits helps to pay for those, although the benefits typically do not start until a policy-holder has received care for at least 90 days. Irrevocable trusts, meanwhile, enable someone to relinquish a set of assets for the benefit of other individuals or an organization. The assets are owned by the trust and an assigned trustee manages the assets, according to the agreement that formed the trust. Designated beneficiaries receive distributions from the trust.

Long-Term Care Insurance Benefits

The chief benefit of long-term care insurance is that it provides relief to the steep costs of long-term care. Costs vary on the range of forms of care that could prove necessary, but the median annual cost of home health aide services is $43,472, according to The Wall Street Journal. Annual costs for other forms of care include $15,860 for adult day care, $39,600 for an assisted living facility, $73,000 for a semi-private room in a nursing home and $81,030 for a private room in a nursing home. The benefit depends on the specific policy, but long-term care insurance helps defray the worst of those costs and keeps the care from eating away at lifetime savings or forcing family members to chip in.

Irrevocable Trust Benefits

When assets are moved into an irrevocable trust, it eliminates the estate tax liability attached to the assets. Therefore, when the grantor of the trust -- the individual who created the trust with the transfer of assets -- dies, the assets are not diminished by the estate tax. An irrevocable trust also allows for grantors to arrange for the assets to be used in a way that they prefer, benefiting certain individuals or institutions that they want to receive the funds. Because the assets in an irrevocable trust are owned by the trust and not the individual who formed the trust, those assets are protected from lawsuits and other claims against the individual.

Long-Term Care Insurance Drawbacks

Cost and uncertainty are two of the largest drawbacks to long-term care insurance. Long-term care insurance rates tend to be high. For instance, NPR cited an average cost of $3,335 per year for coverage for a healthy 60-year-old couple. The high cost is accompanied by the question of whether the insurance will ever be needed. Not all adults ultimately need the type or duration of long-term care that offsets the costs of paying the necessary rates for long-term care insurance.

Irrevocable Trust Drawbacks

The major pitfalls for irrevocable trusts are the format's inflexibility and the sacrifice that the person setting up the trust makes. In an irrevocable trust, the person who moves the assets into the trust not only no longer has ownership of the assets but also cannot access the assets at will. It is essential that someone considering an irrevocable trust is ready to cede control of the assets being placed in the trust. In addition, an irrevocable trust cannot be modified once it is formed, meaning the assets in the trust cannot be removed nor can new ones be added.