Asset Protection by Planning Ahead
Asset Protection Planning, in the context below, deals with the concerns of long term care. We are not discussing millionaires who are using off-shore accounts on some exotic island. In long term care asset protection planning, we are answering three questions of how we are going to pay for our care: 1) Pay the costs out of your own pocket (decreasing the size of the estate your children will inherit) 2) Pay for long term care through long term care insurance (if you are insurable and it is affordable) or 3) Apply for and qualify for government benefits such as Medi-Cal and Veterans Benefits (with certainty and peace of mind).
The easiest way to say it: We are discussing concerns that modest wealth families have for ensuring they will receive quality care while not subjecting themselves, their spouses, and their families to total financial impoverishment.
When is Asset Protection Planning Considered?
There are two times at which when Asset Protection Planning is contemplated. Crisis and a pre-planned approach.
One time frame is often referred to as a “crisis”, when asset protection must be implemented as quickly as possible according to strict guidelines, unique rules, and limited options. This is most frequently seen in Medi-Cal crisis planning or VA Benefits planning where a comprehensive asset protection plan is discussed, customized and implemented so that eligibility can be obtained in a matter of a few weeks with the assistance of the Law Office of Nancy Gottes.
The second time frame — which by our human nature we generally neglect — is asset protection by following a pre-planned approach. This pre-planned approach is undertaken several months in advance of any anticipated crisis.
As with any complex area of life and law, pre-planning is key. An informed client and an experienced elder law attorney are both crucial to the proper planning of yours’ or a loved one’s long-term care needs. That is why we offer this website information, in order to educate and inform, so that “non-crisis” decisions can be made and implemented; and asset protection planning can be accomplished without all the fear, drama and uncertainty associated with crisis planning.
At the Law Office of Nancy Gottes, we offer a variety of pre-planning techniques and opportunities currently available under Californialaw. As with any area of law, these particular techniques require specific knowledge and training. Let’s now briefly discuss the important role that irrevocable trusts can play in pre-planning for maximum asset protection.
Using Irrevocable Trusts
Irrevocable trusts come in many different “flavors”. These trusts may be written to accomplish a wide variety of objectives and purposes. Such objectives and purposes range from asset protection to protection of government assistance benefits for an ill spouse or a person with disabilities.
One of the most important roles for an irrevocable trust is asset protection in the event of a long term care illness, such as Alzheimer’s, dementia, Parkinson’s, stroke, etc. The goal is to place assets into a properly drafted irrevocable trust, which minimizes loss of control while maximizing future eligibility for Medi-Cal and Veterans benefits. In this way, you are limiting the erosion of your estate’s assets, safeguarding those assets for your or your spouse’s future needs, and ensuring an inheritance to your beneficiaries.
Who Should Consider an Irrevocable Trust?
There is no “black-and-white” answer to this question. But, here are a few general guidelines.
Obviously, irrevocable trusts should be established by older adults who wish to protect their assets. The older adult needs a sense of emotional security because he or she must be ready to relinquish direct control over his or her assets. Most of the control over the assets is turned over to a loved and trusted family member, who acts as trustee of the trust. The trustee is in charge of guarding the assets in the irrevocable trust, in case a future need arises. Meanwhile, the older adult continues to maintain direct control over his or her income, such as social security and pensions, as well as assets chosen to remain outside the irrevocable trust. The trust works particularly well for those older adults that are not eroding the principal of their existing assets.
Irrevocable trusts have the additional benefit of passing assets to beneficiaries of the older adult without requiring a probate. Also, the irrevocable trust can incorporate special purpose estate planning, such as special needs trusts or discretionary trusts for children.
Because the transfer of assets to an irrevocable trust is subject to a waiting period for Medi-Cal eligibility of 2.5 years, it is anticipated that the older adult will not need nursing home care for 2 or 3 years. If the older adult is a veteran or a widow(er) of a veteran, then eligibility for the Veterans Aid & Attendance benefit is not subject to a waiting period. This provides more flexibility for a veteran or a widow(er), allowing him or her to establish an irrevocable trust with less concern over an unanticipated medical crisis.
What are the Steps for Establishing the Irrevocable Trust?
Your irrevocable trust should be created as a result of a customized plan suited to your personal objectives and not a “one size fits all” form. Since the irrevocable trust must accomplish your objectives, we need to know for what purpose or purposes we are planning.
A multitude of questions must be answered before the trust can be drafted by your elder law attorney. Do you want to achieve Medi-Cal benefits in the future? Are you a veteran or a widow(er) of a veteran so that the trust must allow for Veterans Benefits to be attainable in the future? Do you want to retain income from the assets after they are placed in the irrevocable trust? What other controls do you want to retain? Will you appoint a neutral, independent third party to have specific authorities to adapt the trust to unforeseen circumstances, such as future changes in the law? Will there be tax advantages built into the irrevocable trust? Do you need to draft any protections for your ultimate beneficiaries of the trust who are disabled or who creditor issues or who get divorced?
After a full understanding of the purposes for the irrevocable trust, then your assets need to be analyzed. Some assets, as compared to other assets, may be selected to go into the irrevocable trust. In addition, what is an appropriate amount of assets to place in the irrevocable trust and what is an appropriate amount of assets to be left out of the trust? Again these are all very important considerations that go into an asset protection plan using an irrevocable trust.
Medi-Cal Asset Protection
What are the benefits to planning ahead with irrevocable trusts for Medi-Cal eligibility? There are several. First, you are achieving a future that has certainty. You have a definite time line, beyond which you have a definite answer, meaning Medi-Cal eligibility. With assets protected in the irrevocable trust, future Medi-Cal eligibility may be as simple as merely filing an application. Furthermore, despite any law changes that occur making asset protection planning stricter, these should not affect you. For instance, if a home, which is ordinarily exempt in almost all circumstances, becomes a countable asset after a short confinement to a care facility, having the home as a part of the irrevocable trust protects that home – forever.
With Medi-Cal, the rules regarding irrevocable trusts are less restrictive. In other words, you don’t lose less control over your assets when implementing Medi-Cal asset protection planning. You maintain multiple options. Not only can you select your Trustee, you can remove the Trustee. You can maintain your rights to all the income earned from the irrevocable trust assets. And, you keep the ability to change your mind until your death about who your beneficiaries will be.
Finally, there’s flexibility even if you have a medical crisis within the Medi-Cal waiting period. As mentioned above, when you move forward, you are getting certainty. But, if that certainty is disrupted because of a medical emergency, and if keeping the irrevocable trust intact doesn’t make sense, there are mechanisms within the irrevocable trust to return the unused assets to you. What has been lost? In the end, really nothing other than the initial efforts put forth for the pre-planning.
Veterans Benefits Asset Protection
What are the benefits to planning ahead with irrevocable trusts for Veterans Benefits eligibility? Many of the same benefits as in Medi-Cal planning. However, the most prominent benefit to using an irrevocable trust to hold assets to achieve Veterans Benefits eligibility is control.
For VA Aid & Attendance benefits, current VA rules do not impose a waiting period before you can access the benefit because you have transferred assets out of your ownership. This means you can transfer ownership of your assets to any one or any other entity, like an irrevocable trust, without imposition of a waiting period.
Even though you can obtain VA A&A benefits by merely giving away your assets to your children, why would you? By placing your assets in an irrevocable trust, you are not making an outright gift to your children. This means you are avoiding most of the problems with outright gifts. Your children don’t have to think about the temptations of spending those assets, even though they are supposed to hold the assets in case you need them in the future. And your assets, owned by the irrevocable trust, are not subject to the child’s creditor’s claims or divorce.
Asset Protection Planning, whether in the context of Veteran A&A benefits or Medi-Cal long term care, it is critically important before moving forward with particular strategies that you have been educated as to all the legal planning options you have and how the course you follow impacts other benefits programs. Only attorneys can discuss the law with you. And, only attorneys can prepare legal documents for you.
The Law Office of Nancy Gottes is here to help you by educating you about your choices for a comprehensive, customized pre-planned approach to you long term care asset protection.