Can I protect money from future long-term care costs without losing the monthly interest I rely on? – North Carolina

Short Answer

Yes, but it requires giving up access to the principal. In North Carolina, a properly drafted and funded irrevocable “income-only” trust can hold savings, protect the principal from future long-term care creditors, and continue paying out the interest to the person who set it up. Transfers to such a trust can affect Medicaid eligibility for a period, and a revocable living trust does not shield assets.

Understanding the Problem

The decision point is narrow: in North Carolina, can a parent who depends on monthly interest keep that income while lawfully positioning savings against future long-term care costs and potential Medicaid scrutiny? The core actions involve choosing the right legal tool (trust vs. will), timing any transfers relative to Medicaid rules, and authorizing a trusted relative to act through solid financial and health care powers of attorney to avoid guardianship if capacity worsens.

Apply the Law

Under North Carolina law, asset protection depends on the type of ownership and retained rights. Assets in a revocable trust or held outright remain available to creditors and for Medicaid financial review. An irrevocable trust that removes the owner’s access to principal can protect the principal; income can still be distributed to the owner if the trust permits it. A durable financial power of attorney can authorize future trust funding and beneficiary updates, but certain authorities must be expressly granted. The main forum for Medicaid applications is the county Department of Social Services; recording at the Register of Deeds applies if real estate is transferred. A key timing trigger is the five-year Medicaid lookback for asset transfers.

Key Requirements

• Give up access to principal: Protection generally requires an irrevocable trust where the owner cannot demand principal back.
• Preserve interest income: The trust can be written to distribute interest/dividends to the owner while principal stays off limits.
• Use the right power of attorney: A notarized durable financial POA should expressly authorize gifts, trust creation/funding, and beneficiary changes.
• Revocable trusts do not shield assets: Assets in a revocable trust remain reachable by the owner’s creditors and countable for Medicaid.
• Watch the five-year lookback: Transfers to an irrevocable trust can trigger a Medicaid penalty period if made within five years before applying.
• Record real estate documents: If an agent signs a deed to move real estate into a trust, record the deed (and POA if used) with the Register of Deeds.

What the Statutes Say

• North Carolina Gen. Stat. § 32C-1-104 (Durability of power of attorney) – A power of attorney is durable unless it states otherwise.
• North Carolina Gen. Stat. § 32C-2-201 (Specific authorities) – Gifts, trust changes, and beneficiary designations require an express grant of authority.
• North Carolina Gen. Stat. § 36C-5-505 (Creditor’s claim against settlor) – During life, assets of a revocable trust and any amount the settlor can access remain subject to the settlor’s creditors.
• North Carolina Gen. Stat. § 108A-70.5 (Medicaid estate recovery) – Establishes Medicaid estate recovery; specific scope and procedures apply.

Analysis

Apply the Rule to the Facts: Here, savings in a standard bank account or a revocable trust would stay exposed to long-term care creditors and remain countable for Medicaid. Moving cash into a properly drafted irrevocable income-only trust can preserve monthly interest distributions while restricting access to principal, which supports protection goals. Early dementia highlights the need to sign a notarized durable financial POA with express gifting and trust powers, and a health care POA, to avoid guardianship if capacity declines and to allow a relative to complete funding later if needed.

Process & Timing

1. Who files: The parent (settlor). Where: Private signing; no court filing is required to create a trust. What: Irrevocable income-only trust; durable financial power of attorney with express “hot powers”; health care power of attorney and advance directive. When: Before care is needed; transfers made within five years of a Medicaid application can cause a penalty period.
2. Retitle assets: move bank funds into the trust. If real estate is involved, the deed (and the POA if an agent signs) should be recorded with the county Register of Deeds. Banks may require trust certification; allow 1–4 weeks for account changes.
3. Maintain records and income flow: direct interest/dividends from trust accounts to the parent per the trust. If Medicaid is later needed, apply through the county Department of Social Services and provide the five-year financial history.

Exceptions & Pitfalls

• Keeping control defeats protection: if the trust lets the parent demand principal (or an agent can return it), creditors and Medicaid can treat it as available.
• Revocable trusts and pay-on-death accounts: these ease transfer at death but typically do not protect assets from the owner’s creditors during life.
• POA gaps: without express authority for gifts, trust funding, and beneficiary changes, an agent may be unable to complete the plan later.
• Timing traps: late transfers can cause a Medicaid penalty; large gifts to children outside a trust expose assets to their creditors or divorce.
• Documentation: banks require proper trust and POA formalities; for real estate, failure to record necessary documents can block title changes.

Talk to a Estate Planning Attorney

If you’re dealing with long-term care planning and need to protect principal while preserving interest income, our firm has experienced attorneys who can help you understand your options and timelines. Call us today at [919-341-7055].

Disclaimer: This article provides general information about North Carolina law based on the single question stated above. It is not legal advice for your specific situation and does not create an attorney-client relationship. Laws, procedures, and local practice can change and may vary by county. If you have a deadline, act promptly and speak with a licensed North Carolina attorney.