Asset Protection Trusts: Help For Seniors

Susan Kelly

Jun 13, 2022

An asset-protection trust may aid seniors who need continuous nursing care in paying for the high expenses of assisted living or skilled nursing homes, as well as at-home care. According to a 2019 Genworth poll, the average daily cost of a nursing home is more than $247, and it may be significantly more in other locations. People often spend all of their savings before Medicaid helps. This makes it hard to leave an inheritance or care for people who depend on them. People can get Medicaid and keep some of their money for their families at the same time by putting their assets in an irrevocable trust. So what is asset protection trusts: help for seniors.

How Can Trusts Assist Elders in Protecting Their Assets?

There are two main kinds of trusts: those that can be changed and those that can't. As the name says, revocable trusts can be taken back. Medicaid thinks the things in the trust still belong to the person who set it up. And if that amount is more than the limit for assets, they won't be able to get help.

A person with an irrevocable trust, on the other hand, can give control of their money to a trustee, which makes them eligible for Medicaid. There is a wait because Medicaid has a "look back" for five years. If someone moves money into a trust five years before they apply for Medicaid, it could take longer for them to get benefits. The length of the interruption, known as "penalty time," is computed by dividing the deposited funds' worth by Medicaid's "regional rate" for home care in a certain area.

For example, in a region where the regional rate is $10,000 per month, a person who puts $100,000 into a trust before going to a nursing home would not be eligible for Medicaid help for ten months. Before Medicaid would start paying the bills, someone (usually a family member) would have to pay the nursing home out of their own money. This means that putting $100,000 into the trust wouldn't help at all. On the other hand, that person could get help immediately if they gave away their assets more than five years ago.

The Tax Advantages of a Trust

You can also pay less tax if you have a trust. The basis of the assets in a trust goes up, which can help the beneficiaries save a lot of money on taxes. On the other hand, assets that are just given away during the owner's lifetime usually have the same basis as when they were bought.

Think about the following example. Let's say that shares of stock that cost $5,000 when they were first bought are now worth $10,000 when given to the beneficiary of a trust. In this case, that stock would have a base value of $10,000. If the similar receiver had been given them as a reward once the real proprietor was quite alive, their root would be $4,999. Once the stocks were sold later for $12,000, the person who got them from a trust would have to pay taxes on a $2,000 gain, while the person who got them as a gift would have to pay taxes on a $7,000 gain. Simply put, assets that come from a trust are taxed much less.

The Importance of Choosing the Correct Trustee

A well-written trust will not only protect a person's assets. Still, it will also give trustees the freedom to provide money to beneficiaries, who can then spend it for the benefit of the older person. Because of this, it's crucial to choose a trustee you can trust. Since trust is its legal entity, the money is usually safer than if it were just given to a family member who could be sued, get divorced, or have other bad luck that could put that money at risk.

Consult an Estate Planning Attorney

Americans who need help from Medicaid don't have to spend all their savings to get money. Since you only need a small number of assets to qualify for Medicaid, you might want to set up a Medicaid Asset Protection Trust to protect yourself when you get older. You are safe from bad people, and you can also hide your assets so that Medicaid will help you. With a well-written asset protection trust, your loved ones can be taken care of both while alive and after you die. Setting up this kind of trust should give you peace of mind because you'll know you're taking care of your loved ones.

In Conclusion

People who need help from Medicaid with money do not have to spend all of their savings to get help. They can protect at least some of their assets for themselves and their heirs with a well-written irrevocable trust.

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