How do we set up a Will/Trust that leaves our home to our son, when he lives on the property?

I would do a life estate now so that when you and your spouse die it goes to your son. Nursing home costs cannot touch a home in a living trust ... ask the lawyer as it is a non fee maker for the attorney and he may discourage it with things like if your son gets in debt, etc.

the other alternative which is easy is to put the home in joint tenancy with the three of you but nursing home can take your share .

Thank you to all for your advice. I appreciate it.
I live in an area where ADU's or recreation buildings can be built on the same land as the main home, especially for immediate family. My son has been able to do this for a comfortable living area. All legal permits have been made, so this isn't the issue for the home itself.
I have decided to contact a lawyer though, that seems the smartest way to make sure everything is in order. I wanted to know more information about the process before going to see someone. It can be confusing when there are multiple ways of doing this.
Thank you again for taking the time! This site is invaluable.

1.  How is the existing deed titled?  In the names of you and your husband jointly?   I'm assuming your son's name isn't in the warranty deed title?   Or that his name is on any tax bills for his portion?

2.  You might want to call the local community offices and speak with someone in the Assessor's office, or Platting office (if there is one).   Depending on community regulations, there might be a possibility of severing his lot by assigning it a separate legal description, lot number and/or plat no.   But that would have to be done through the community governmental offices.   

3.  You might also have to have your own lot replatted as it will be severed from your son's portion.   The Treasurer's Office would be notified, with the new lot number and Sidwell (property identification).   

4.  Then, once you have a legal description for your property only (and your son has a description for his property), you can have a real estate or elder law attorney create a new deed for you and your husband's property and (a) add your son's name with survivorship rights.    There might be better ways to do this, which a good attorney with background in estate planning (specifically trust and wills) as well as real estate.   This could be a tricky situation, depending on the community and its regulations.

5.    This is a supposition; I have some limited knowledge of parcel separation, but I believe it varies by county.   If by chance you live in a rural area and the lot description is metes and bounds, you might have to deed his lot to him outright.

If the last sentence is applicable, another issue could come into play:  access.   From my experience with parceled up metes and bounds property, jurisdictions typically require newly platted or metes & bounds parcels to have ingress and egress access.   The new area can't be w/o that.   This is something a real estate attorney should research and advise.

6.     I don't have enough experience in tax law to offer any suggestions on your son's tax benefit now or as a participant in joint ownership.  I am surprised though that the community didn't require some type of severance, or permission, for his house to be built.

7.    I would get this done now, but definitely hire legal help to address the questions in your last paragraph.    This is too complicated to be answered on a forum; you need real pros practicing in this area.  We can offer suggestions on issues but you certainly should not rely on advice gained from an Internet forum, other than following up with qualified professionals. (And, I'm not sure what a POE is, or did you mean proxy under a DPOA or POA?)

Consult a trust and estate attorney to do is properly. The property has to be deeded into the trust, and the fact that your son already has a house on the property may complicate it a bit as to how the trust is written.

Do it now, not when only one of you is still alive. That one left behind could conceivably not be competent to create a trust. You just never know what can happen.

Depends on the state.

My aunt deeded her home to her children with the agreement that she pays the taxes and they are responsible for repairs and upkeep. I don’t know if they have a legal document stating the terms but that seems like a good idea.

Quite honestly you need an attorney to tell you how to do this so that assets are best protected for your son. This isn't something you can afford to make a mistake on nor can he, as he built his home on your property, making any deed an uncertainty. I would first go to a real estate attorney to find out how title is currently held and how it should best be held. I would moreover consult and elder law attorney then also. You cannot now know whether or not at some distant time you may need care, then assets be so dwindling that you would need medicaid, which would cause clawback from the government for any funds put forward for your care when your home is sold upon your death. So I would be clear on this and I would use attorneys to do so. Yes, it is an expense, and well may take you between two and five thousand when all is said and done and trust written, but it will well worth it not to have this go wrong. I hope others have clues and hints about what might work best for you, but whatever you learn on a forum is worth checking out with experts where things are concerned that involve transfer or assets in the 100s of 1,000s of dollars. Wishing you the best and glad you are thinking ahead about this.