Estate Planning for Asset Protection
This year this blog is following a hypothetical family through their lives to see what role estate planning had on their family. To review prior articles, go to SeamonLawOffices.com/Blog.
We have worked with the Smith family for years regarding long-term Medicaid benefits and estate planning, but recently Joe received some bad news from his doctor, he has been diagnosed with dementia. Joe and Barb are pretty shaken up, so they decided to bring their daughter, Sue, to their consultation for additional support. They are very distraught and the thought of having Sue along is comforting to them.
Joe is still doing well enough to pay the bills and most things that he has always taken care of, but he had a couple red flags recently that prompted him being tested. Joe’s mother had dementia, so he was knowledgeable and proactive. They are keeping his diagnosis private for now since they still need to deal with this reality before sharing it with extended family and friends.
Given Joe’s diagnosis of dementia, the couple thought they should review the decisions they made years ago, and they wanted to ensure that they had the most up-to-date documents possible. That was very forward-thinking on their part because a lot of clients are so consumed with their health issue, that they procrastinate on the legal issues. Both can be addressed at the same time.
The review was helpful because they realized they had included Joe’s brother as a potential fiduciary, but they had drifted apart quite a bit. They decided that they should replace him with their son-in-law. The decision they most regretted was that they had not purchased long-term care insurance when they were younger and healthier. They remembered we had discussed that specific trusts can help to legally protect assets, but at the time of that discussion, they were not that concerned.
We reviewed how an irrevocable trust can be utilized to legally protect specific assets from long-term care costs. A bonus to this type of trust for wartime veterans and their surviving spouses is that it can also be a valuable tool to help them qualify for Veterans pension benefits such as the Aid and Attendance pension. As a veteran, Joe was very interested in this option, but he had concerns about the tax implications of gifting to a trust. The farm his parents gifted him during their lifetime had a very low basis, so he was concerned about how that would affect him. The good news is that this type of trust can be used to secure assets during a person’s lifetime so they may qualify for long-term care Medicaid or the Veteran’s pension while having the desired tax outcome. Thus, the tax implications for the farm could be addressed and mitigated whether it was sold during Joe and Barb’s lifetimes or when inherited upon their deaths.
For this type of trust to be fully protective, it must be in place for five years for long-term care Medicaid protection and three years to qualify for the Veterans pension. Joe and Barb felt confident that they would not need care within that period, so they were very interested in setting up their irrevocable trust. Despite not having purchased the long-term care insurance prior to Joe’s illness, they were relieved to know there were still other options for their family!