By Paul Lorrah
It is an unfortunate reality of aging, if we live long enough most of us will eventually have a chronic condition or illness that requires us to have assistance with our daily living or health, known as Long-Term Care.
Despite the likelihood that we will need long term care someday, most people do not properly plan for it. This failure to plan in advance can be devastating when a health crisis occurs due to the unnecessary extra financial, physical, and emotional burden placed on our families.
Have you planned for the likelihood that you will need long term care someday?
Because of the high cost of care [nursing homes average $9-11,000 per month], planning in advance is vital.
When planning in advance for long-term care, you must have a plan that includes utilizing the Medicaid program. Medicaid is a long-term care cost assistance program that is part of our Social Security system.
The reason to plan in advance is to ensure that your hard earned savings and your home are protected for your family.
One of the most important parts of the Medicaid program to plan for is it's Estate Recovery. This allows the Medicaid program to be reimbursed for the amount it has paid out on an individual behalf. The Medicaid Estate Recovery unit can place a lien on the home or estate of the person that has been receiving Medicaid.
Most people want their home to go to their children or other family when they die, not to the government. But Medicaid Estate Recovery can force your home to be sold to pay the government back.
Planning in advance can help you avoid this from happening.
What can be done to protect your home from being lost if you end up needing long term care?
Finally, we have some good news. With expert planning, especially if you plan in advance, seniors can ensure that their homes will stay in the family after their deaths and not be lost to estate recovery.
There are a few different planning options that people can use to protect their homes from the Medicaid Estate Recovery Program, however only 1 can be used by anyone. Several options only apply to very specific family circumstances [like those with disabled children]. This article will discuss an option that is available to everyone who has the wisdom to plan in advance. It can be used to protect your home and other assets, including investments, for your spouse, children or other heirs after your death. This very important planning option is called a Medicaid Asset Protection Trust.
This trust allows you to protect your real estate (and other assets if you wish) from long-term care costs while avoiding the risks and negative consequences of outright transfers to children. By transferring your home and other assets into a properly designed trust, you can still reserve an interest in and some control over the transferred assets – advantages that are not available when transfers are made outright to a child.
For example, the trust can provide that you have the right to reside in the home for the rest of your lifetime. No one can throw you out or ask you to pay rent. You still own the home for tax purposes, so you can still deduct the taxes, and claim any property tax rebates. You can claim the residential exclusion from income tax if the property is sold during your lifetime. And your heirs can get a step up in tax basis if the property is sold after you die (which can limit or avoid any income taxes they might otherwise have to pay).
The Trust Can Protect More than just your Home
Investments, such as stocks, bonds, bank accounts, and life insurance policies are also commonly protected through the use of this special form of trust.
What is a trust?
Let's do quick review of what a trust is. A trust is a legal arrangement that allows a Trustee, to manage assets on behalf of a beneficiary or beneficiaries.
The individuals involved in a trust are the Grantor [person(s) creating the trust], the Trustee [person managing the trust assets] and the beneficiary [person(s) receiving the trust assets upon the Grantors death].
How does the trust work?
The grantor transfers ownership of the home and assets to the trust, the trustee will oversee the trust assets to ensure that they are protected and distributed to the beneficiary as instructed by the trust. Trust assets and income can be distributed to a beneficiary at any time even during the Grantors lifetime.
Who can be Trustee?
Anyone that the Grantor wishes, the Grantor will choose the Trustee and beneficiaries when the trust is created.
You, as the Grantor can also be trustee and retain full control over the assets. You cannot however be the beneficiary, Medicaid rules do not allow it.
This is Not your standard Revocable Living Trust
It’s important to note that a Medicaid Asset Protection Trust is very different than the standard revocable “living trust” that many people hear about.
A revocable living trust does not protect your assets from nursing home and other long term care costs.
The Medicaid Asset Protection Trust is an irrevocable trust specifically designed to protect its holdings from loss when you apply for Medicaid to pay for your long- term care costs.
When you transfer assets you want to protect to the trust, you don’t have to sell them. You don’t have to change your investments. What you own now is merely 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 need to move, the trust can sell it and buy a new one.
We've created many of these trusts for our clients. Most people don’t even notice the trust once it has been set up. It changes things just enough to protect your assets from nursing home costs, while preserving them for yourself, your spouse and your children.
If you're reading this article and you have not had the opportunity to plan in advance, there may still be options available to you.
Ready to learn more? Contact us today.