Creating a trust for someone with Alzheimer’s disease requires acting while the person still has enough cognitive capacity to understand what a trust is, what assets they own, and who they want to benefit from it. If your loved one has been recently diagnosed but can still engage in meaningful conversation about their finances and wishes, you likely have a narrow but real window to establish a revocable living trust with the help of an elder law attorney who can document their legal capacity at signing. For families where the disease has already progressed past that point, a court-supervised conservatorship or guardianship may be the only remaining path to manage assets, which is significantly more expensive and time-consuming.
The process itself involves selecting a successor trustee, transferring assets into the trust, and specifying how those assets should be used for the person’s care and eventually distributed. A couple in Ohio, for instance, might establish a revocable living trust shortly after an early-stage diagnosis so that when the healthy spouse can no longer manage finances alone, their adult daughter can step in as trustee without any court involvement. This article covers the specific types of trusts that work best for Alzheimer’s situations, how legal capacity is determined, the role of the trustee, Medicaid planning complications, common mistakes families make, and what to do when the window for voluntary trust creation has already closed.
Table of Contents
- Can You Legally Create a Trust for Someone Who Has Alzheimer’s?
- Revocable vs. Irrevocable Trusts for Dementia Care Planning
- Choosing the Right Trustee for Someone with Alzheimer’s
- Steps to Funding the Trust and Transferring Assets
- Medicaid Complications and the Five-Year Lookback Trap
- What to Do When It Is Too Late for a Voluntary Trust
- Planning Ahead When a Diagnosis Is New
- Conclusion
- Frequently Asked Questions
Can You Legally Create a Trust for Someone Who Has Alzheimer’s?
Yes, but only if the person has what attorneys call “testamentary capacity” at the time the trust document is signed. This is a lower bar than many families expect. The person does not need to understand every clause of the trust agreement or remember the conversation the next day. They need to demonstrate, at the moment of signing, that they know they are creating a trust, have a general understanding of their assets, and can identify who they want to benefit. A person with mild to moderate Alzheimer’s may meet this standard on a good day, even if they struggle with short-term memory or get confused in unfamiliar settings. The critical difference is between someone in the early stages who can still participate in decision-making and someone in the later stages who cannot.
An elder law attorney will typically spend time alone with the person, ask questions about their family, their property, and their wishes, and document that conversation carefully. Some attorneys bring in a geriatric psychiatrist or neuropsychologist to perform a formal capacity evaluation on the same day, which creates a medical record that is very difficult to challenge later. If a disgruntled family member tries to contest the trust, that contemporaneous capacity assessment becomes the strongest piece of evidence. However, if the person cannot answer basic questions about who their children are or what property they own, most attorneys will decline to proceed. At that point, creating the trust would expose it to legal challenges and could put the attorney’s license at risk. Families in this situation are not without options, but the options shift from voluntary planning to court-supervised proceedings.
Revocable vs. Irrevocable Trusts for Dementia Care Planning
For most families dealing with an Alzheimer’s diagnosis, a revocable living trust is the starting point. It allows the person to remain in control of their assets while they are able, names a successor trustee who takes over when they cannot manage anymore, and avoids probate entirely at death. The trust can be amended or dissolved at any time while the person has capacity, which gives flexibility in the early stages. The successor trustee — often an adult child or a professional fiduciary — steps in seamlessly when a doctor certifies that the person can no longer manage their own affairs. An irrevocable trust, by contrast, removes assets from the person’s ownership permanently. This matters enormously for Medicaid planning, because Medicaid’s five-year lookback period means any assets transferred to an irrevocable trust within five years of applying for long-term care benefits will trigger a penalty period during which Medicaid will not pay for nursing home care.
A family that creates an irrevocable trust too late — say, three years before the person needs a memory care facility — will face a gap where neither the trust assets nor Medicaid can cover the cost of care. In 2024, the average annual cost of memory care in the United States was roughly $65,000, making that gap financially devastating. The limitation families need to understand is that a revocable trust offers zero asset protection. The assets inside it are still considered the person’s property for Medicaid eligibility, creditor claims, and tax purposes. Families who want both the management benefits of a trust and the asset protection needed for Medicaid planning often need a two-trust strategy — a revocable trust for day-to-day management and a separate irrevocable trust funded well ahead of the five-year lookback period. This requires early action, which is exactly why an Alzheimer’s diagnosis should trigger immediate legal planning rather than waiting.
Choosing the Right Trustee for Someone with Alzheimer’s
The trustee decision is arguably more important than the trust document itself, because the trustee will control how money is spent on the person’s care for years or even decades. Many families default to the oldest child, but this can be a mistake if that child lives far away, has a complicated relationship with the person, or lacks financial literacy. A better approach is to evaluate who has the time, the temperament, and the proximity to manage ongoing care decisions — paying for home aides, handling insurance claims, coordinating with memory care facilities, and keeping detailed records. Consider the case of a family with three adult children. The eldest lives out of state, the middle child has a history of financial problems, and the youngest lives twenty minutes from the parent and already handles their grocery shopping and doctor visits. Naming the youngest as trustee makes practical sense, but it can create resentment.
One effective solution is naming the youngest as primary trustee for day-to-day decisions while requiring the trustee to send quarterly accountings to the other siblings. This builds in transparency without creating a committee that cannot make timely decisions about care. Professional fiduciaries — typically trust companies or licensed individuals — are another option, particularly for families where no child is suitable or where family conflict is likely. They charge fees, usually between 1% and 1.5% of trust assets annually, but they bring expertise in managing care-related expenses and are legally held to a fiduciary standard. For a trust holding $500,000 in assets, that means roughly $5,000 to $7,500 per year. Some families use a hybrid approach: a professional fiduciary manages the investments and accounting while a family member makes the care decisions.
Steps to Funding the Trust and Transferring Assets
Creating the trust document is only half the job. A trust that exists on paper but owns nothing is useless. Funding the trust means retitling assets — bank accounts, brokerage accounts, real estate, and other property — into the name of the trust. This is where many families stumble. They pay an attorney $3,000 to $5,000 to draft a trust, then never transfer the house or the investment accounts, and the trust fails to do what it was designed to do. Real estate transfers require a new deed. Bank and brokerage accounts require paperwork with each financial institution.
Some assets, like retirement accounts (IRAs and 401(k)s), should generally not be transferred into the trust because doing so triggers an immediate taxable event. Instead, the trust is named as the beneficiary of the retirement account, which achieves the same result at death without the tax consequences during life. Life insurance policies follow a similar pattern — you typically change the beneficiary designation rather than transferring ownership, unless there is a specific estate tax reason to use an irrevocable life insurance trust. The tradeoff families face is between speed and thoroughness. Transferring every account can take weeks of phone calls, notarized forms, and follow-ups. When you are racing against cognitive decline, there is a temptation to skip the smaller accounts. As a general rule, prioritize the house and any account holding more than $50,000, then work down the list. Even a partially funded trust is far better than an unfunded one, because it gives the successor trustee a legal framework to work within and avoids probate for the assets that are inside it.
Medicaid Complications and the Five-Year Lookback Trap
The single biggest mistake families make when creating trusts for someone with Alzheimer’s is ignoring Medicaid planning. Most people with Alzheimer’s will eventually need some form of long-term care, whether in-home aides, assisted living, or a memory care facility. Medicare does not cover long-term custodial care. Private long-term care insurance, if the person has it, often caps out after two to three years. Medicaid is the payer of last resort, but it requires the applicant to have very few assets — typically $2,000 or less in countable resources for a single individual, though the rules vary by state and there are protections for a healthy spouse. Here is the trap: if assets were transferred into an irrevocable trust, given to family members, or otherwise moved out of the person’s name within five years of the Medicaid application, the state will impose a penalty period. During that penalty, Medicaid will not pay, and the family must cover the full cost of care out of pocket.
A family that transferred $200,000 into an irrevocable trust three years before applying for Medicaid might face a penalty of 25 to 30 months, depending on the state’s divisor. At $8,000 to $12,000 per month for memory care, that penalty can exhaust whatever savings remain. The warning here is blunt: do not attempt Medicaid planning without an attorney who specializes in elder law in your specific state. The rules are dense, they vary significantly between states, and errors are punishable by penalties that can leave your loved one without coverage at the worst possible time. A revocable trust does nothing for Medicaid eligibility. An irrevocable trust only helps if it was funded more than five years before the Medicaid application. There are legitimate strategies — like spousal impoverishment protections, certain types of annuities, and caregiver child exemptions — but they require precise execution.
What to Do When It Is Too Late for a Voluntary Trust
If Alzheimer’s has progressed to the point where the person lacks capacity to sign legal documents, the family cannot create a trust on their behalf without court involvement. The typical route is a conservatorship or guardianship proceeding, in which a judge appoints someone to manage the person’s financial and personal affairs. This process involves filing a petition, providing medical evidence of incapacity, and often a court hearing.
In many states, it costs $3,000 to $10,000 in legal fees and takes several months. Once a conservator is appointed, they can petition the court for permission to create a trust, but the court will scrutinize the terms closely to make sure the trust serves the incapacitated person’s interests and not just the family’s convenience. A judge in California, for example, might approve a special needs trust that ensures the person qualifies for public benefits while preserving assets for supplemental care, but deny a trust structure that appears designed primarily to benefit the heirs. The court supervision adds time, cost, and uncertainty — all of which could have been avoided if planning had happened earlier.
Planning Ahead When a Diagnosis Is New
The first weeks and months after an Alzheimer’s diagnosis are overwhelming, but they are also the most valuable window for legal and financial planning. Beyond the trust itself, families should ensure the person has a durable power of attorney for finances, a healthcare power of attorney or healthcare proxy, an advance directive or living will, and updated beneficiary designations on all accounts. These documents work together as a package. A trust without a power of attorney leaves gaps.
A power of attorney without a trust means the agent may still face delays and pushback from financial institutions. Looking ahead, there is growing recognition in the legal community that the traditional approach — waiting until a crisis to plan — does not work for progressive diseases like Alzheimer’s. Some elder law attorneys now offer “diagnosis day” planning packages designed to handle everything in one or two sessions while capacity is clear. As the population ages and Alzheimer’s diagnoses increase, these proactive planning models will likely become the standard rather than the exception.
Conclusion
Creating a trust for someone with Alzheimer’s is one of the most important steps a family can take, but the window for doing it closes as the disease progresses. The key decisions — revocable vs. irrevocable, who serves as trustee, how to fund the trust, and whether Medicaid planning is part of the picture — all depend on how early the family acts and what their specific financial and care circumstances look like. There is no one-size-fits-all trust for dementia, which is why an elder law attorney who understands both estate planning and public benefits law is essential.
If your loved one has recently been diagnosed, do not wait. Schedule a consultation with an elder law attorney this month, gather financial records, and have an honest conversation with the family about care preferences and trustee responsibilities. If the disease has already progressed past the point of capacity, explore conservatorship options with an attorney who can guide you through the court process. Either way, taking action now — even imperfect, partial action — is far better than doing nothing and facing a crisis with no legal tools in place.
Frequently Asked Questions
Can someone with Alzheimer’s sign a trust?
Yes, if they have testamentary capacity at the time of signing. This means they understand they are creating a trust, know what assets they have in general terms, and can identify their beneficiaries. An attorney will evaluate capacity at the signing, and many recommend a same-day capacity evaluation by a medical professional.
How much does it cost to set up a trust for someone with dementia?
A revocable living trust typically costs between $2,500 and $7,000 depending on complexity and location. If Medicaid planning with an irrevocable trust is needed, costs can reach $5,000 to $10,000 or more. Conservatorship proceedings, if capacity has already been lost, add another $3,000 to $10,000 in legal and court fees.
Does a revocable trust protect assets from nursing home costs?
No. Assets in a revocable trust are still considered the person’s property for Medicaid eligibility purposes. Only an irrevocable trust, funded at least five years before a Medicaid application, can protect assets from being counted. Even then, the transfer must be structured carefully to avoid penalties.
What happens if no trust or power of attorney exists and the person loses capacity?
The family will need to petition a court for conservatorship or guardianship, which is more expensive, slower, and less private than trust-based planning. The court will appoint someone to manage the person’s affairs and will require ongoing reporting and oversight.
Should retirement accounts like IRAs be placed in the trust?
Generally no. Transferring an IRA into a trust triggers immediate taxation on the entire account balance. Instead, the trust should be named as the beneficiary of the IRA, so it passes into the trust at death without the tax hit during the person’s lifetime.
Can a family member challenge a trust created after an Alzheimer’s diagnosis?
Yes, and it happens regularly. This is why documenting capacity at the time of signing is critical. A contemporaneous evaluation by a geriatric psychiatrist or neuropsychologist, combined with the attorney’s own assessment, makes the trust much harder to overturn. Without that documentation, a disgruntled heir can argue the person lacked capacity, and courts may agree.
