Understanding asset protection planning
So, you have a traditional trust — one that is revocable and changeable and avoids the need for a guardian or probate in the event of incapacity or death. But, did you know that this type of trust offers no additional protection against your creditors during your life or after it? For many people it is this gap — the lack of protection against the rising cost of long-term care and the risk to their non-liquid assets — that motivates them to use an irrevocable trust to hold their assets.
The reality is that the cost of long-term care is increasing exponentially. In 2015, the U.S. Department of Health and Human Services determined the average cost of care is $138,000 per individual. In the same month, Forbes magazine estimated the higher figure of $265,000 per individual. According to the same study, each of us has a 50 percent chance of needing assistance to meet these needs if we are 65 or older. And the reality is that many people do not have the liquid investments on hand to meet the rising cost of their long-term care needs.
Many people work hard their whole life and have much to show for it like a paid-off house, ranch land, rental properties or a business. While they have these amazing resources, they lack cash on hand. Based on the 2015 studies, individuals should have a approximately of $265,000 in liquid assets and married couples should have $530,000.
So what happens if your need for long-term care exceeds the cash you have available? You have to start selling your business interests, rentals, and carving out ranch land to liquidate because you cannot qualify for assistance with your long-term care if you have too many assets in your name. Once you are left with approximately $2,000 in the bank, your home, and a car, you could apply for Medicaid. But to reach this threshold, you have had to undo a lifetime of hard work. Even if you are able to keep the house during life, Medicaid is not free and the state will recover from your estate anything Medicaid paid out during life. In this way, the equity in your home will be taken after you have passed away.
Proper business and asset protection planning is the next step in helping families prepare for the rising cost of long-term care. It requires the client establish an irrevocable trust — a trust that the client cannot later change, revoke or amend. But after a period of time, the assets in the trust are invisible to the client’s future creditors. Within two years, any basic creditor cannot force that asset to be sold to satisfy a future liability, and after five years, the asset cannot be counted against the client for the purposes of qualifying for government assistance for long term care. In this way, a portion of your estate can be preserved for your benefit and the benefit of your loved ones, without having to be sold or dismantled to afford your long term care.
Asset protection planning takes several years to be effective — it is not something you can do overnight. If you have worked hard, and built a lifetime legacy which includes property you wish to preserve for future generations, but you have limited cash resources, you should seek competent legal counsel to advise you about the use of an irrevocable trust to preserve what you worked so hard for.
Cassandra G. Jones, Esq., is the managing attorney at Heritage Law Group, P.C., in Minden, Nevada. She is a founding member of Douglas County’s Special Advocates for the Elderly, serves on the Austin’s House Board of Directors, and is member of the State Commission on Judicial Ethics. Ms. Jones practices in the area of estate planning, business planning, and elder law. She may be reached at 775-782-0040.