Currently the Revocable Living Trust is one of the most popular type of trust for estate planning but if you're a senior over the age of 70, you're doing yourself a disservice by using one.
Why? Let's review;
What is a Revocable Living Trust?
A revocable living trust, is a legal document that places your assets—investments, bank accounts, real estate, etc. in trust for your benefit during your lifetime and spells out where you'd like these things to go upon your death. Because it is revocable you can cancel or change it at any time during your lifetime.
This type of Trust's main purpose is to avoid probate. Probate is the legal process of disbursing your assets upon your passing. A main goal of estate planning is to avoid probate because of the cost involved and the time frame. Attorney fees and fees that must be paid to the state in which you live which [based on the value of your estate] will usually be very high.
Generally if a person's estate has real property and/or a value of anywhere from $30,000 to $50,000 [depending on your state] or more your estate must go through probate.
At one time a revocable living trust was an estate planning attorney's go to plan and included Power of Attorney documents and that was about it. Every attorney did it the same way and many, many still do.
If the living trust avoids probate, that's a good thing. So what's wrong with it?
It does not provide any asset protection.
It will protect your assets after you pass away but not at all while you're alive.
Let's get into it a little deeper.
If you're doing your estate plan in your 30's, 40's, 50's or maybe even in your 60's it's perfectly fine and is recommended because you can make changes as you're life and financial circumstances change.
However, if you're in your 70's you need to be planning for long term care. Let's face it, we all hate talking about it but statistics show that 76% of all Americans over the age of 70 will require some level of long term care in their lives.
Because of that we have to include nursing homes in the scope of long term care planning. Nursing homes cost on an average of $10,000 per month. Depending on where you live, it's not uncommon for the to be as much as $14,000 per month.
With those high costs, no one wants to make that payment each month very long.
So, what are your options? Medicaid. Long term care Medicaid programs pay 100% of the costs associated with nursing homes [in some states it will also pay for assisted living and at home care] once approved.
Let' s get one thing straight, Medicaid is NOT welfare. Medicaid is part of the Social Security act and was initially designed solely to pay for Nursing home costs.
You've paid into Social Security your whole working life, you deserve to take advantage of all that it has to offer.
However, Medicaid approval may not be possible if you have assets, investments, real estate, etc.
But if I placed my home and savings in the Living Trust, I'll be ok, right?
That's where the Revocable Living Trust falls apart.
Since it's revocable, everything in it will be counted as an asset and make you ineligible for Medicaid until it's been spent.
No one wants to plan to leave their assets to their children, family, etc, just to have it lost to long term care costs.
What's the Answer?
An Asset Protection Trust.
The main difference between the asset protection trust and living trust is that the asset protection trust is designed to protect your assets during your lifetime AND after.
After your life time it will still accomplish all of your goals to avoid probate.
During your lifetime it will protect those assets from law suits, divorce, creditors and the big one - Medicaid - it will ensure that all of the assets placed in the trust are not counted for Medicaid eligibility.
What does that mean? It means that when used properly, the day that you have to enter a nursing home, Medicaid will make the payments each month.
An Asset Protection Trust does require a lot more thorough planning because what you don't place in the Trust is just as important as what you do.
Funds that you may need in the near future won't be placed into the Trust, it will not affect your current lifestyle.
However, when you're health deteriorates it will be the most valuable tool you've ever used.
Let's use a scenario.
John, age 75 has a house and $300,000 in savings.
John visits his local attorney for estate planning and they suggest a Revocable Living Trust for his protection.
the attorney helps arrange for the transfer of the family home and $150,000 of the savings to go to the Trust.
John leaves the office feeling good about his decision.
Lets; fast forward 6 years
John has a stroke, goes to rehab and realizes he can no longer care for himself. He can't return home and must go to a long term care nursing home.
The nursing home says it will cost $11,000 per month for his care unless he applies for Medicaid.
John says to himself, I'll apply for Medicaid since the house and a large savings account was transferred to my living trust, I should be eligible.
Unfortunately, No. Medicaid eligibility does not recognize a living trust as protection.
The house and savings account will count and he is now not eligible for Medicaid and may have to spend the savings and sell the family house to pay the nursing home.
He now realizes that he may not have any inheritance to leave his children.
However, If john had placed those same assets in An Asset Protection Trust, they would have been protected, not counted for Medicaid eligibility.
His children would be the beneficiary of the family house and the savings account NOT the nursing home. Medicaid would be paying John's bill, not his children's inheritance.
So, if you're a senior age 70 or more, An Asset Protection Trust will serve you much better than a living trust.
Questions? call us today to learn more about asset protection strategies to guard against the cost of long term care.