[The following article
was written by Attorney Nick
Lutz of Marshall,
Parker and Weber]
Consumers who are
nearing retirement age can be bombarded with information about how to protect
their assets from loss to future care needs. Their insurance salesman says one
thing. A neighbor warns about the cost of nursing home care and tells a horror
story about a family member who lost everything. Friends at the beauty salon
share what they’ve done to protect themselves and family in case they need nursing
home care in the future. With all of
this information overload, it’s a wonder clients in this age range can think
clearly about long-term care planning issues at all.
For individuals worried
about long-term care costs destroying their financial legacy, meeting with an
elder law attorney is time well spent. Elder law attorneys can provide important
advice and clear up the misconceptions and half-truths that are often packaged
in barber shop talk.
Although each case is
different, one strategy elder law attorneys frequently propose involves trust
planning to protect assets from nursing home costs. Below, I outline some
common scenarios where trust planning may be appropriate.
You Want to Leave a
Legacy
In most instances, the
primary purpose of asset protection trust planning is to leave a legacy to
children or other family members. The staggering cost of nursing home causes
parents to worry that their assets will be depleted, leaving nothing left to
pass on. Asset protection trust planning provides a solution for this by allowing
parents to transfer assets out of their name using a safe arrangement.
Assets transferred to
an appropriately drafted asset protection trust more than five years prior to
filing a Medicaid application do not need to be disclosed. This makes it easier
to qualify for Medicaid and shelters the assets transferred to the trust.
Another reason asset
protection trusts allow families to leave a legacy is that under current law real
estate transferred to a specially structured trust should not be subject to the
Medicaid
Estate Recovery program. Because of this, asset protection trust planning
is a good strategy for families whose home is their most valuable asset.
You Are Considering
Giving Your Home to the Children
If you are considering
transferring your home to your children, or “selling” your home to them for a
dollar, you should consider trust planning instead.
Outright transfers of
assets are risky. Often, clients engage in these types of transfers without
knowing all of the potential risks and consequences. There is a five year
look-back period on the transfers of assets for less than fair market value
when an individual applies for Medicaid to help pay for long-term
care expenses. Transferring the home to your children may also expose it to
your children’s life circumstances – their divorce, personal injury claims, or drug,
alcohol, and gambling addiction can all create situations where you are no
longer secure in your home. Once you transfer property to another person
outright, they own it and can do what they want with it.
Transferring your home
to an asset protection trust is safer because it will not be subject to the
life circumstances of your children and you can retain the right to live at the
property for the rest of your life.
You Are Comfortable Relinquishing
Some Control of Assets
Trusts are legal
arrangements where a settlor (trust creator) transfers assets to a trustee to
manage for the benefit of the trust’s beneficiaries.
Settlors of asset
protection trusts generally retain certain powers, such as the power to change
the distribution scheme to beneficiaries, remove the trustee(s), and to direct
that the trustee(s) make gifts to the beneficiaries during the life of the
settlors.
In order for the trust
to protect assets, however, settlors must give up some power as well. The
settlors will not have unfettered access to the trust assets and what is
transferred in cannot be distributed directly back to them. The trust must be
irrevocable so that the settlors cannot receive the assets directly by revoking
or “undoing” the trust. Finally, settlors must entrust the day-to-day
management of the trust assets to the trustee(s).
Prospective trust settlors
must understand that in order to gain protection, they may need to give up some
control. For clients who do not mind this arrangement, the power to shelter
assets from the cost of long-term care is awesome.
You Did Not Purchase
Long-term Care Insurance
Nursing homes are
usually paid one of three ways – privately from the resident’s savings, by
long-term care insurance, or through government benefits.
Long-term care
insurance and asset protection trust planning are both strategies for early
planners. Like any insurance product, there is a screening process for
long-term care insurance applicants. The poorer your health and older you are,
the less likely you are going to be to get an affordable policy. This, coupled
with the phenomena of increasing premiums has traditionally made long-term care
insurance a difficult product for agents to sell.
While long-term care
insurance makes sense in some circumstances, for many clients asset protection
trust planning is a better alternative. Clients who, because of their health,
could not qualify for an affordable insurance policy can engage in trust planning.
It is also good for clients who did not, or do not wish to pursue long-term
care insurance but do want to plan to leave a legacy.
Conclusion
If these common
scenarios sound like things you have been considering, you should schedule an
appointment with an elder law attorney to discuss your options. Trust planning
is not the only tool that can be used to protect assets from the cost of
long-term care; however, it can offer tremendous power and flexibility for many
families.
If you reside in
northeastern or central Pennsylvania, an attorney at Marshall,
Parker & Weber would be happy to meet with you to discuss your options
and help you determine if trust planning is appropriate for you.