In the 49 years I have practiced law, I have never witnessed such a change in the concerns that our clients bring to our office. Historically, clients were concerned about avoiding probate, minimizing death taxes and making sure that the assets they’ve worked so hard to create get to their families as simply as possible. While those continue to occupy the minds of our clients, the focus in the past 7 years has changed: now, most people who sit across from me are concerned that there will be nothing left to leave to their families, due primarily to the cost of medical and long-term care.
That concern is well placed. The average cost of skilled nursing care in Northeast Ohio averages $9,600.00 per month, per person. Few families can afford to pay that out of monthly income. The result: the nursing home gets paid out of assets…savings accounts, cash value of life insurance, automobiles, retirement plans (IRAs, 401ks)…assets which many hard-working families have taken a lifetime to accumulate and protect. It is heartbreaking to witness. Parents who dreamed of making the lives of their children and grandchildren easier by leaving behind a significant inheritance now face the possibility, perhaps the probability, of losing most if not all of their accumulated assets to the ever-increasing cost of nursing home care. Even the small number of families that have purchased long-term care insurance find that the amount of benefit paid covers less than half the cost of nursing care; and in many cases, the premiums owed for that insurance keep going up, each year.
Very few assets are safe from the obligation to privately pay for nursing home care. Highly prized vintage cars, antiques, family heirlooms—many of those which have been preserved by families as some of their most treasured possessions, might have to be sold in order to pay for this care. While many authors have predicted that the largest transfer of wealth in American history will occur in the next decade, those forecasts are being proven wrong because of the cost of care.
Some assets which might have to be sold come with a double whammy: if those assets have gone up in value considerably since they were purchased, either capital gains or ordinary income taxes will have to be paid, before what is left is paid to a nursing home. In addition, money which has to be withdrawn from IRAs or 401ks is all pre-tax money. Families are forced to pay income taxes on those withdrawals before the rest is paid to the nursing home.
Why not just transfer your assets to your children? So long as five years (known as the “Look-back Period”) passes after you do that, those assets do not have to be spent on your nursing home care. However, you cannot be sure that you can get the assets back from your children, since they could be lost by the children to a lawsuit or divorce against them, or if a child dies and leaves those assets to someone who does not care about you.
All is not lost. With proper planning, well in advance of the need for skilled nursing home care, most if not all of the family’s assets can be preserved for the next generation(s), and yet the parents who earned those assets can continue to enjoy them for the rest of their lives. This is accomplished through a trust…an Irrevocable Asset Protection Trust. The trust is created during your lifetime, and you are the only trustee(s). That means that you are completely in charge of all assets that are transferred into the trust. Even though the trust is irrevocable, a number of aspects of it may always be changed by you while you are alive:
- The trustees who will take over if you are unable to serve;
- The “Lifetime Beneficiaries” who may receive distributions from the trust while you are alive; and
- The beneficiaries who will receive what is left in the trust when you die.
Assets transferred into the trust receive immediate protection against lawsuits, and after five (5) years, all of those assets are protected against the cost of nursing home care. The result: after 5 years, you would qualify for Medicaid to pay for your nursing home costs, and the assets inside the trust may be preserved for your heirs. The only restriction upon you, as the creator(s) of the trust, is that you cannot remove money or other assets from the trust directly to yourself or for your benefit. However, you can always distribute cash or other assets of the trust to your Lifetime Beneficiaries (who are typically your children or trusted friends), and they can then transfer the assets back to you for you to use. Those types of transfers—from the trust to Lifetime Beneficiaries and then back to you—may be done as often and in whatever amounts you wish.
As a result, the assets are protected against both lawsuits and nursing home costs during your lifetime, yet they may be available to you if you need them. The most important result: YOU REMAIN IN CONTROL. Since you are the trustee(s) of the trust, you may sell any assets within it and, purchase new assets (in the name of the trust) at any time. If you go into a nursing home after the 5-year period passes, the trust’s assets may be used to pay for extra care for you that Medicaid may not provide, but they do not have to be used for those purposes. You decide.
Whether or not an Irrevocable Asset Protection Trust is right for you depends upon many factors. The best approach is to sit down with us and discuss your goals and objectives. The first appointment for that purpose if free. If you decide to proceed, we will always tell you exactly what your cost will be. Just call our office to schedule an appointment. Today, due to the pandemic, that appointment may be either in person or virtually on Skype, FaceTime or Zoom. In addition, if you wish to learn more about this asset protection strategy, you may want to attend one of our free seminars or webinars. Just go to our website, www.alpernlaw.com, in order to see the schedule of upcoming sessions.
You can protect your assets against lawsuits and nursing home costs, but the time to act is NOW!
-Attorney Jack N. Alpern