Avoid Probate: Smarter Ways to Transfer Property in Long-Term Care Planning That Protects Your Heirs

If you have ever managed an estate, you know probate can be slow, costly, and public. Estimates often place total probate costs at approximately 3 to 7 percent of the estate's value, although the exact figure depends on state law and the complexity of the case.

Planning gives you control if you lose capacity and ensures a smoother transfer of assets to your heirs. It also shields your hard-earned savings from the growing costs of long-term care. 

Longevity has created challenges that earlier generations rarely faced, and one of the biggest is the need for long-term care. Advances in medical science allow us to live longer, but they also increase the likelihood of needing costly extended care.

Over half, 56 percent, of Americans turning 65 today will develop a disability serious enough to require long-term services and supports. — U.S. Department of Health and Human Services, ASPE, 2022.

Revocable Living Trusts: Flexible and Private

A revocable living trust allows you to retitle major assets into a trust that you control during your lifetime. You can amend or revoke it at any time. On death or incapacity, your successor trustee distributes property privately, which avoids probate and preserves privacy.

Remember to fund the trust by retitling assets, or those items may still go through probate. Keep in mind, however, that a revocable trust does not shield assets from your creditors.

Transfer-On-Death Tools and Beneficiary Designations

Many states allow transfer-on-death (TOD) or beneficiary deeds for real estate. You can use deeds that comply with state law to pass real estate directly to your beneficiaries—without going through probate. All it takes is signing and recording the document while you're alive, so it takes effect once you're gone.

You keep full control during life. Upon death, the property transfers directly to the named beneficiary, without the need for probate, if the deed was recorded correctly. Availability and rules vary by state.

For financial accounts, payable-on-death (POD) or TOD beneficiary designations on bank, brokerage, and retirement accounts can move assets to heirs outside probate. Check your state rules and your institution’s forms.

Joint Ownership and Life Estates: Simple but Risky

Joint tenancy with right of survivorship allows property to pass to a co-owner upon death without the need for probate. Life estates can reserve lifetime use while naming a remainder beneficiary.

These tools are simple but risky. Adding a child as a co-owner can create gift-tax issues, expose the property to your child’s creditors, and limit your flexibility to sell or refinance. Get legal advice before adding names to the title.

Gifting, the Deficit Reduction Act, and Medicaid Look-Back Rules

Gifting during life removes assets from your probate estate, but it triggers tax and Medicaid rules.

• Federal gift tax annual exclusion: $19,000 per recipient in 2025 (up from $18,000 in 2024).
• Federal estate and gift tax lifetime basic exclusion: $13.99 million per person in 2025. Current higher exclusions are scheduled to drop after 2025 under the Tax Cuts and Jobs Act unless Congress acts.

Learn more: IRS.

For long-term care, the Deficit Reduction Act of 2005 (DRA) tightened Medicaid transfer rules, including a five-year look-back for most states and “penalty periods” for gifts made within that window.

• Most states: 60-month look-back for nursing home and many HCBS waivers.

California (Medi-Cal): As of January 1, 2024, California eliminated the asset test for long-term care (nursing home, in-home, home- and community-based services). That meant in 2025, eligibility for long-term care Medi-Cal is determined without regard to the amount of assets you hold. Since California eliminated the asset test on January 1, 2024, there has been no penalty for gifting or transferring assets to qualify for Medi-Cal long-term care.

Because of that, the traditional “asset spend down” strategy does not apply during this period. But note: while assets are not counted, income is still considered.

However, beginning January 1, 2026, California will reinstate asset limits for long-term care eligibility. The proposed limits will revert to amounts similar to those prior to 2024.

California will reinstate both the asset test and transfer penalties.

The look-back period will be 30 months (2.5 years) for transfers made on or after January 1, 2026. This is shorter than the federal Medicaid standard of 60 months.

Practical takeaway: Do not dispose of assets without professional advice. Gifting can delay or prevent Medicaid eligibility when you need care.

Long-Term Care Insurance and the Partnership Program

Long-Term Care Insurance pays for home care, assisted living, memory care, and nursing home costs that Medicare does not cover. Medicaid is the primary payer of LTSS, but it is means-tested. Private coverage helps you protect savings and choose higher-quality care.

The Long-Term Care Partnership Program, expanded by the DRA, allows dollar-for-dollar asset protection in most states. If your Partnership-qualified policy pays $200,000 in benefits, you may be able to keep $200,000 of assets and still qualify for Medicaid when the policy ends, subject to your state’s rules.

When to Plan and What to Buy

You get better choices and lower premiums when you apply while healthy. Industry data indicate that most buyers are in their 50s and 60s, with a sweet spot between ages 47 and 67. That is when underwriting approval rates are higher and premiums are more affordable.

Today, you can choose from:

• Traditional LTC Insurance with various benefit periods and inflation options.
• Hybrid life and LTC policies that provide a death benefit if you never need care.
• Annuity-LTC hybrids and other designs, some with simplified or more lenient underwriting for applicants with moderate health conditions.
• Employer and association “multi-life” options in some markets.

Learn more: LTC News Long-Term Care Insurance Education Center.

Work with a licensed Long-Term Care Insurance specialist who quotes multiple highly rated carriers offering long-term care solutions. Compare underwriting, inflation protection, elimination periods, daily or monthly maximums, and Partnership eligibility.

For an older adult with health issues, a current life insurance policy can be a big help. If they have a life insurance policy, you could sell it for cash now to cover the costs of care.

Small Estate Procedures May Help

Many states offer small estate procedures or summary succession laws that allow heirs to transfer assets with an affidavit when the probate estate is below a state-set threshold. Thresholds vary by state. Consult with your attorney to determine if this applies to your specific situation.

Build Layers for a Safer Plan

A strong plan uses layers, not one tool. Consider:

• A revocable living trust for your home and major assets.
• POD and TOD designations on financial accounts.
• TOD or beneficiary deeds for real estate, where available.
• A current will to catch any assets outside your trust.
• LTC Insurance, preferably a Partnership-qualified policy, to protect assets from extended care costs.

This layered approach helps your property transfer smoothly even if one tool fails.

What it Means for Your Family

Care costs are rising in every market. Check local costs with the LTC News Cost of Care Calculator and plan for inflation. Pair that with an estate plan that keeps your family out of court and protects your savings for the people you love.

• If you are facing a family crisis and your loved one requires long-term care immediately, use the LTC News Caregiver Directory to search for caregivers and facilities. If your loved one has a Long-Term Care Insurance policy, get help filing a claim. LTC News partners with Amada Senior Care to provide free claim support with no cost or obligation. Their trained experts can walk you through the entire process and help you access benefits quickly and correctly — File a Long-Term Care Insurance Claim.

Planning will make the consequences of aging easier on those you love.

Disclaimer: This article is for educational purposes only and is not legal, tax, or financial advice. Laws and thresholds vary by state and are subject to change over time. Consult a qualified estate-planning attorney, a licensed Long-Term Care Insurance professional, and a tax advisor before you act.