The nursing home is very expensive and protecting your assets from the high cost of long-term care is not easy. One way to protect your assets is establishing an irrevocable trust more than 5 years from entering a nursing home.
Attributes of an Irrevocable Asset Protection Trust
Established by yourself or your attorney-in-fact five years before you apply for Florida Medicaid benefits.
You have no access to the trust principal during your lifetime.
You may maintain an income interest in the trust.
You name a trustee to manage the trust assets during your lifetime.
Assets in the trust protected after the five year Medicaid transfer penalty expires.
Asset in the trust receive a step-up in basis upon your death, meaning your heirs can sell the trust assets tax free upon your death.
Why would I want an Irrevocable Asset Protection Trust?
Most trusts we create are revocable and changeable during your lifetime as most people do not want to give up control of their assets. But, if you want to help ensure that your children receive an inheritance upon your death, then this may be a good way to go. Here is an example of this type of trust:
Dad, age 80, is healthy. He has a home and about $500,000 in the bank and in some brokerage accounts. He has 3 children he trusts and that he wants to leave a legacy for. After consultation with our office, he decides that he trusts that his health will last at least for the next five years. With this, he establishes an irrevocable trust and retitles some $400,000 of his assets, including his home, to his trust. His most trusted child is trustee of this trust, which distributes all trust income to Dad during his lifetime. After five years, the trust assets are protected in the event dad goes into the nursing home. He trusts that Medicaid will now take care of him, which it will. Upon Dad's death, the trust assets, now valued at $500,000 due to growth, are distributed equally to his children, who also receive the assets with a step-up in basis.
Here, Dad had enough money to keep for his own enjoyment, he wanted to leave a legacy to his children, and he had a trust family member to serve as trustee. While not for everyone, these trusts can be a way to make sure your hard-earned assets do not disappear to the high cost of nursing home care.
Factors That Make an Irrevocable Asset Protection Trust a Good Choice
The size of your estate - the more money you have, the more helpful a trust can be
Trusted and responsible family member(s) to serve as trustee
Enough funds to make the cost of the trust worthwhile
If you have appreciated assets (i.e., stocks and bonds that have gone up in value), this may be a good choice
A desire to leave or preserve a legacy to your family
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