Can Trusts and Life Insurance Protect Assets from Long-Term Care Costs? A Pennsylvania Guide

Can Trusts and Life Insurance Protect Assets from Long-Term Care Costs? A Pennsylvania Guide

By Christian Joseph Marrazzo, Life and Health Insurance Agent at PAC Financial, Harrisburg, PA. August 2026.

Key takeaways:

• A revocable living trust does not protect assets from nursing home costs or Medicaid spend-down. This is the most expensive misunderstanding in elder planning, and correcting it early is worth more than any product.
• The tools that can protect assets all share one feature: a clock. Irrevocable trust strategies generally need to clear Medicaid's 60-month lookback, and insurance must be bought while healthy.
• Life insurance plays three different roles in care planning: rebuilding an inheritance that care costs consumed, holding wealth outside the estate through a trust, and, in modern policies, accelerating the death benefit to pay for care while living.
• Pennsylvania adds two twists most articles miss: Partnership-qualified LTC policies carry dollar-for-dollar Medicaid asset protection, and life insurance proceeds paid to beneficiaries are generally exempt from PA inheritance tax.

PAC Financial is a third-generation, family-owned independent financial advisory and insurance firm at 5291 Devonshire Road in Harrisburg, Pennsylvania, founded in 1972, serving Central Pennsylvania. Questions about care planning and protecting what you built? Call (717) 564-6400.

Somewhere in Central Pennsylvania tonight, from Perry County farmhouses to Middletown ranch homes, a family is having the whispered version of this conversation: "Maybe we should just put the house in the kids' names." The instinct behind that whisper is completely right, protect what a lifetime built from being consumed by care costs. The tool is completely wrong, and the timing is usually worse. Signing the house over triggers the exact 60-month lookback problem it was meant to dodge, can create tax problems the family never sees coming, and hands ownership to children whose divorces and debts become the house's problem. So let's have the unwhispered version instead: what actually protects assets from long-term care costs in Pennsylvania, what each tool honestly costs, and why every real answer has a clock on it.

Does a revocable trust protect assets from nursing home costs in PA?

No, and here is why: you still own everything in it. That is the entire feature of a revocable trust, you keep full control, can amend or dissolve it anytime, and that same control is exactly why Medicaid counts every dollar inside it as yours. Revocable trusts do honorable work: they keep your estate out of probate, keep your affairs private, and manage assets if you become incapacitated. They do zero work against care costs, and the number of families who learn this at a Medicaid application is heartbreaking. If your estate plan's protection strategy is a revocable trust, you have an estate plan. You do not yet have a care plan.

What is the Medicaid 60-month lookback, and what actually protects assets?

The genuine tool on the trust side is the Medicaid asset protection trust: irrevocable, drafted by an elder-law attorney, and holding assets that generally stop counting for Medicaid once the transfer clears the 60-month lookback. The honest price tag has three parts. Time: funding the trust starts a five-year clock, so this is a strategy for the healthy 60-year-old, not the family in crisis. Control: irrevocable means what it says; what goes in is governed by the trust's terms, not your whims, which is precisely why it works. Craft: these documents live or die on drafting and on which assets go in, which is attorney work, full stop; our seat at that table is the insurance and beneficiary side, making sure what the attorney builds and what your policies say agree with each other. Families with modest estates sometimes discover the math favors a different path entirely, and hearing that plainly is part of the service.

Where does life insurance fit? Three different jobs.

Job one: estate replacement, the elegant move almost nobody explains. Here is the reframe that changes the whole conversation for many couples: stop trying to shield every dollar from care costs, and instead spend confidently on the care you want, because a life insurance policy is set to rebuild the inheritance on the other side. Mom and Dad use their assets for the best available care, on their terms, at home when possible. When the second spouse passes, the policy pays the children directly, bypassing probate, and generally exempt from Pennsylvania's inheritance tax, the same 4.5% that would have clipped most other assets on the way to the kids. Care gets funded and the legacy gets rebuilt, and nobody spent five years maneuvering around a lookback. The trade-offs, stated plainly: it requires insurability and premium budget, and it protects the legacy rather than the spending assets themselves, which is why it often pairs with, rather than replaces, the other tools.

Job two: the trust-owned policy. For larger estates, an irrevocable life insurance trust owns the policy, keeping the death benefit outside the taxable estate and outside your ownership entirely, with proceeds landing exactly where the trust directs, protected by the trust's terms from a beneficiary's divorces and creditors. It is the estate-planning workhorse, attorney-drafted, and it pairs naturally with everything on our generational wealth page.

Job three: the living benefit. Modern policy design blurred the old line between life insurance and care coverage: hybrid life-and-LTC policies and long-term care riders can accelerate the death benefit to pay for care while you are alive, and if care is never needed, the benefit passes to your family anyway. For the couple that hates use-it-or-lose-it premiums, "someone gets a benefit either way" is usually the sentence that unlocks the conversation. Riders vary enormously, some may not be represented as long-term care coverage at all, and some do not determine the benefit until claim time, which is exactly the fine print my desk exists to read before you need it.

Does life insurance count as an asset for Medicaid eligibility?

A detail that surprises families mid-application: yes, sometimes. Term insurance generally does not count, it has no cash value. Permanent policies are different: once face value exceeds modest exemption limits, often around $1,500, the cash value counts as an available asset, and families have been forced to surrender a parent's old policy in a spend-down. Structure and ownership decide the outcome, a policy owned by a properly funded irrevocable trust beyond the lookback sits outside the countable estate, and this is exactly why the insurance review belongs YEARS before any application, alongside the attorney's work, not after it.

How do PA Partnership long-term care policies work?

For families in the middle, too much to qualify for Medicaid, not enough to shrug off a $540,000 care event, Pennsylvania's Long-Term Care Partnership program is the underused bridge: qualified policies carry dollar-for-dollar asset protection, meaning in general terms that every dollar of benefits the policy pays allows a dollar of assets to be protected from Medicaid spend-down. A $300,000 Partnership policy can, in effect, put a $300,000 shield around the family balance sheet while providing the care coverage itself. Qualification rules apply, the policy must actually be Partnership-qualified, and that verification is a five-minute question with a licensed professional that families from Hershey to Carlisle almost never think to ask.

How does PA Medicaid estate recovery affect life insurance?

The last piece most articles skip: after a Medicaid recipient age 55 or older passes, Pennsylvania's estate recovery program can seek repayment of long-term care costs from the probate estate. Under current Pennsylvania rules, recovery reaches the probate estate, which means assets that pass outside probate, life insurance to named beneficiaries chief among them, are generally outside its reach, and those same proceeds are generally exempt from PA inheritance tax. It is one more reason beneficiary designations are the quiet heroes of elder planning, one more reason the "just put it in a will" plan underperforms, and one more item for the attorney's checklist, since rules can change and exceptions exist for hardship and surviving spouses.

So what does the coordinated plan look like?

Timing decides everything, so read this as a clock. At 55 to 65 and healthy, every door is open: coverage is underwritable, Partnership policies are available, trust strategies have runway to clear the lookback, and estate replacement can be built at its cheapest. At 70, the doors narrow: underwriting tightens, trust clocks feel longer, and the conversation shifts toward hybrid designs and rearranging what exists. In a crisis, the remaining moves are few, technical, and belong almost entirely to an elder-law attorney. The families who do this well run a three-seat table: the attorney drafts the trusts and navigates Medicaid rules, the tax professional keeps the moves clean, and our desk handles the insurance architecture, the policies, riders, ownership, and beneficiary designations that make the legal structure actually pay. And the honest paragraph this article owes you: some families need none of this. Large estates that can comfortably self-fund care, and modest estates best served by straightforward Medicaid planning, both exist, and hearing which one you are costs you nothing.

Three questions tell you whether this conversation is worth an hour. Could your family state, today, which assets are protected from a care event and which are exposed? Does anyone know whether the life insurance you already own counts as a Medicaid asset, or whether it carries a rider you have never read? And if care consumed the estate, is there anything in place to rebuild what passes to the kids? If any of those landed somewhere uncomfortable, bring two things to one meeting: your existing policies and a simple list of what you own. We will map the exposure in plain English with your attorney and tax professional in the loop, and tell you the truth, including when the truth is that you are already covered. The first conversation costs nothing and carries no obligation. Call (717) 564-6400.

Talk to a Harrisburg long-term care planning professional

Christian Joseph Marrazzo, Life and Health Insurance Agent
(717) 564-6400 | LinkedIn

PAC Financial | 5291 Devonshire Road, Harrisburg, PA 17112 | www.pacfinancialfirst.com | Meet the whole team

About the author

Christian Joseph Marrazzo is a Life and Health Insurance Agent at PAC Financial in Harrisburg, Pennsylvania, and the third generation of the family firm founded in 1972. He leads the firm's long-term care planning work, comparing coverage across multiple highly rated carriers for Central Pennsylvania families, and works alongside the firm's advisors on the estate planning side of the same conversation. Read his guides on what Medicare actually covers and senior care options in the Harrisburg area, and connect with him on LinkedIn.

Sources

• Medicaid.gov, eligibility, transfers of assets, treatment of trusts, and estate recovery
• Pennsylvania Department of Human Services, Medical Assistance estate recovery program
• Pennsylvania Insurance Department, Long-Term Care Partnership program
• Pennsylvania Department of Revenue, inheritance tax treatment of life insurance proceeds
• Administration for Community Living (HHS), long-term care basics
• CareScout, 2025 Cost of Care, Harrisburg area, PA

This material is for informational and educational purposes only and should not be construed as specific insurance, investment, tax, or legal advice or a recommendation. Trust drafting, Medicaid planning, and estate recovery strategies are legal matters requiring a qualified elder-law attorney licensed in Pennsylvania, and tax outcomes require a qualified tax professional; PAC Financial provides insurance services and coordinates with clients' legal and tax advisors, and does not provide legal or tax services. Medicaid, inheritance tax, and estate recovery rules described are general, current as of August 2026, subject to change, and applied case by case; exemption figures vary and must be confirmed. Trust and asset protection outcomes depend on proper structure, funding, timing, and applicable law, and are not guaranteed. Long-term care insurance and life insurance are not right for everyone; policies are medically underwritten and contain exclusions, limitations, reductions of benefits, waiting periods, and terms for keeping them in force; riders vary materially, and some chronic illness riders may not be represented as long-term care insurance; guarantees are based on the claims-paying ability of the issuing insurance company. Hypothetical scenarios are illustrations only. Insurance services offered through PAC Financial, which is not affiliated with Osaic Wealth, Inc. Securities and advisory services offered through Osaic Wealth, Inc., member FINRA/SIPC; PAC Financial and Osaic Wealth are separately owned. This communication is intended for residents of Pennsylvania.