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Do you have the right kind of trust?

Senior Adult Couple Going Over Papers in Their Home with Agent.

 

Many of our clients come into our office with trusts. Most of the time these trusts are what are called revocable living trusts (RLTs). Bluntly put, these types of trusts offer no asset protection whatsoever, even though seniors often assume otherwise.

Only certain types of irrevocable living trusts (IRTs) provide asset protection for long-term care. If drafted properly, IRTs may be considered a gift by the senior to the beneficiaries, and thus removed from the senior’s estate permanently. If, however, the senior has any access to principal in the IRT, then the IRT will not provide any asset protection from the costs of long-term care.

It is possible to allow seniors to maintain an income interest in the IRT, as opposed to an interest in the principal of the IRT, but this creates a more complicated audit process if and when the senior ever needs to look to the Medicaid program to pay for the costs of long-term care.

About 66 percent of all U.S. citizens will be looking to the Medicaid program if long-term care is needed. Therefore, it is important to properly draft an IRT and also understand the time of the creation and funding of the IRT so that the creation of the trust will not interfere with a possible application for Medicaid to cover the costs of long-term care.

Seniors also have to keep in mind that there are significant issues in the drafting of an asset protection trust that deal with the following:

  • Income tax issues
  • Gift tax issues
  • Estate tax issues
  • Medicaid eligibility issues
  • The right beneficiaries, receiving the right assets, at the right time
  • Trustee issues
  • Using the IRT in a period of health for the senior versus a health crisis
  • Selecting the right assets to place in the IRT

Asset protection trusts are essential for many seniors, because they may be the only way assets can be protected, not only from the cost of long-term care but also potential predators as well as creditors of their beneficiaries.

But the drafting of an IRT is much more complex than the drafting of an RLT and seniors need to make sure that they retain an elder law attorney to maximize the chances that their trust is the right trust for them at that point in their life.

To contact me, call 847-292-1220, e-mail abferraro@abferrarolaw.com or visit www.abferrarolaw.com.

 

About Anthony B. Ferraro

Anthony B. Ferraro is the founder and managing member at the Law Offices of Anthony B. Ferraro. He received his Bachelor of Science degree in accountancy from DePaul University and his Master of Science in taxation. After receiving his CPA designation in 1978, he enrolled in law school, earning his Juris Doctor in 1983 from De Paul University. An elder law practitioner, his practice areas include Medicaid planning and applications, guardianship, probate & trust administration, long-term care planning, nursing home contracts and admission, senior estate planning, special needs planning, estate planning, and estate taxation.