Dec82025
Estate Planning Q&A Series

What is the practical difference between a revocable and an irrevocable trust for asset protection, and which makes sense for us? – North Carolina

Short Answer

Under North Carolina law, a standard revocable living trust is excellent for probate avoidance and management if someone becomes incapacitated, but it does not protect assets from long-term care costs, Medicaid, or most creditors because the creator keeps full control. An irrevocable trust can provide asset protection and help with Medicaid planning, but only if assets are given up permanently and transferred into the trust well before the Medicaid “lookback” period. For a couple whose main concerns are long-term care and the five-year lookback, a carefully designed irrevocable trust may make sense for the home, while a revocable trust is often used for general estate planning efficiency. The right mix depends on health, timeline, and comfort with giving up control.

Understanding the Problem

The narrow question is: in North Carolina estate planning, how does a revocable trust compare to an irrevocable trust when the main goal is asset protection against future long-term care and Medicaid estate recovery, and which type is more appropriate for a married couple who own a mortgaged home and an IRA and want everything to pass to one child? The decision point is whether to prioritize flexibility and control (revocable trust) or long-term care protection and Medicaid eligibility planning (irrevocable trust), recognizing the impact of the five-year lookback period and how the home and retirement accounts are treated.

Apply the Law

North Carolina follows the general rule that assets are countable for Medicaid and creditor purposes if the person still owns or controls them, even if those assets sit in a revocable living trust. For Medicaid and asset protection planning, the focus is on whether the transfer to a trust is permanent, whether the person can get the assets back, and when the transfer occurred compared to the federal Medicaid lookback period administered through North Carolina’s Medicaid program.

Key Requirements

  • Control and Revocability: If the trust creator can revoke or freely change the trust and use the assets, those assets remain exposed for Medicaid eligibility, estate recovery, and most creditor claims.
  • True Transfer in an Irrevocable Trust: For asset protection, the trust must be structured so the creator no longer owns or controls the principal, and any transfer must not be for less than fair market value inside the Medicaid lookback period or it may trigger a penalty.
  • Timing and Medicaid Lookback: Transfers of assets (including to certain trusts or to a child) within the lookback window can cause a period of ineligibility for long-term care Medicaid, and the State may make an estate recovery claim later against remaining assets or interests.

What the Statutes Say

Analysis

Apply the Rule to the Facts: In the fact pattern given, a standard revocable living trust for the couple’s home and as beneficiary of the IRA would streamline inheritance and avoid probate delays, but it would not shield the home equity from Medicaid eligibility or estate recovery because the couple would still control and benefit from the trust assets. By contrast, placing the home into a properly drafted irrevocable trust, where the couple keeps at most a limited right to live in the property but cannot demand the equity back, could help protect the home from future long-term care costs if the transfer occurs outside the lookback period and is coordinated with Medicaid rules. The IRA itself usually cannot be placed directly into an irrevocable trust without tax consequences and instead is often managed through beneficiary designations aligned with the overall plan.

Process & Timing

  1. Who files: The couple (as grantors) work with a North Carolina estate planning attorney. Where: Documents are typically signed and notarized in the attorney’s office; trusts are not recorded with the court, but a deed transferring the home to a trust is recorded with the county Register of Deeds. What: Revocable living trust agreement and/or irrevocable trust agreement, new deed for the home, updated powers of attorney, wills, and beneficiary designations. When: Ideally completed well before any foreseeable need for long-term care and at least five years before applying for long-term care Medicaid if using an irrevocable trust for asset protection.
  2. After the trust is signed, the home is re-titled by recording a deed into the chosen trust, and financial institutions receive any necessary trust certificates or beneficiary forms; mortgage lenders may need notice or consent in some situations.
  3. Once funded, the revocable trust operates as a management and probate-avoidance tool, while an irrevocable trust used for Medicaid planning operates with restricted access to principal; estate administration later follows the trust terms, and any Medicaid estate recovery claim is evaluated against remaining probate and nonprobate assets.

Exceptions & Pitfalls

  • Some transfers to or for the benefit of a spouse, or certain disabled family members, are treated differently under Medicaid rules and may not trigger the same penalties, but these exceptions are narrow and fact-specific.
  • Setting up an irrevocable trust but retaining too much control or direct access to the assets can cause the trust to be treated as available for Medicaid or creditors, defeating the protection goal.
  • Deeding a home outright to a child or into a trust without reviewing the lookback rules, capital gains, and property tax consequences can create ineligibility periods or unexpected tax results.
  • Failing to coordinate the trust with updated powers of attorney, wills, and IRA and life insurance beneficiary designations can leave assets outside the trust or exposed to estate recovery.

Conclusion

In North Carolina, a revocable living trust is a strong tool for probate avoidance and incapacity planning but does not provide real asset protection against long-term care costs or Medicaid because the creators still control the assets. An irrevocable trust can protect a home or other assets and support Medicaid planning only if the creators permanently give up access to principal and complete the transfers outside the five-year lookback period. For a married couple with a home and IRA, the next step is to meet with counsel to design a coordinated plan, decide whether an irrevocable trust for the home fits their comfort with loss of control, and sign and fund the chosen trust structure before health or timing becomes an issue.

Talk to a Estate Planning Attorney

If a family is weighing revocable versus irrevocable trusts to protect a home and savings from future long-term care costs in North Carolina, our firm has experienced attorneys who can help explain the options, trade-offs, 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.

Category: Estate Planning Q&A Series

Author: jpierce

Attorney Jared Pierce is the founder of Pierce Law Group in Raleigh, North Carolina, a firm he established with a dedicated focus on probate administration and estate planning across North Carolina. Born and raised in the Republic of South Africa, Jared moved to Durham with his family in 2001, bringing with him a rich cultural background and a distinctive accent that often serves as a conversation starter.