Tuesday, May 19, 2015

A Trust that Protects your Home from Care Costs

The Home Protection Trust

The numbers are terrifying. If you are 65 or older there is a 70% chance that you will need long term care at some time during your remaining life. By “long term care” I mean the kinds of help people need if they have a prolonged physical illness, disability or cognitive impairment (such as Alzheimer’s disease) that requires ongoing support.

Long term care is very costly. The average annual cost of a semi-private room in a Pennsylvania nursing home is now over $100,000. And even if you stay at home, care can place a big financial, physical, and emotional burden on your family.

Have you planned for the likelihood that you will need long term care someday?

For many people, their home is their major and most precious asset. Unfortunately, without advance planning, your home may be at risk of being lost to the cost of long term care.

Part of the reason your home is so vulnerable is a government program called Medicaid Estate Recovery. Since nursing homes and other forms of long term care are so expensive, many people run out of money and end up needing government assistance (Medicaid). But, when you die, Medicaid requires repayment for the money it spent on your nursing home or other forms of long term care. The government can force your home to be sold in order to repay Medicaid.

Some people try to protect their home by deeding it to their children. But this can create a host of Medicaid and tax problems and can subject your home to loss due to unanticipated events in your children’s lives. See, my earlier article “Should I Give My Home to My Children?”

For most seniors, a better way to protect your home is to deed it to a special kind of trust. [The legal term “trust” describes the holding of your property by a trustee (who can be one or more of your children) in accordance with the provisions you create in a written trust instrument.]

Using a trust, your home (and other assets if you wish) can be protected from estate recovery when you die, even if you had a long stay in a nursing home. And since the trust, rather than a child, is the owner of the property it is protected from bad things that may happen in your child’s life as well.

It’s important to note that the kind of special “Home Protection Trust” I am describing is very different than the common revocable “living trust” that many people have already set up. A revocable living trust provides for management of assets but does NOT protect the assets from care costs. The Home Protection Trust is an irrevocable trust specifically designed to protect its holdings from loss if you ever have to apply for government assistance to pay for your long term care costs.

When you transfer your home to the trust you don’t have to sell it. If you put financial assets in the trust, you don’t have to sell or change your investments. What you own has merely been moved under the protective umbrella of the trust. The trust can sell things held by it, and buy new things. If your home is held under the trust, and you decide to move, the trust can sell it and buy a new one.

I’ve created many of these trusts for both my clients and members of my own family. They work well, especially if they are set up far in advance of the need for long term care. Most people don’t even notice that they have a trust once it has been set up. It changes things just enough to protect your assets from nursing home costs, from issues with your children, and from other risks.

With advance planning and expert guidance seniors can ensure that their homes will stay in the family after their deaths and not be lost to estate recovery.

If you reside in Pennsylvania, set up an appointment with one of the elder law attorneys of Marshall, Parker and Weber, and find out if a home protection trust is right for you and your family. If you are over age 65, the time to plan is now.

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