Part of my estate planning practice includes asset protection planning, especially for Medicaid. Many of my clients are interested in protecting their assets for their children. They know, either through personal experience or their own research, that the cost of long-term care could deplete their estates.
The average cost of a nursing home in Connecticut is over $13,000 a month and the average cost of full-time home care is over $6,000 per month. With most retirees living on a fixed income that barely covers their expenses, these additional costs quickly eat into savings.
The good news is that if your savings are depleted, you can apply for Medicaid / Title 19 to pay for home care or nursing home care. But because the assets have to be spent before you can qualify for Medicaid, that means there is little to nothing to pass onto your children.
What Is Asset Protection Planning?
Asset protection planning is a way to shield assets from having to be depleted, allowing you to qualify for Medicaid / Title 19 benefits without having to spend those protected assets. In order to protect the assets, they must be transferred out of your name and control.
Those assets must have been transferred at least five years before you apply for Medicaid /Title 19 benefits. This is known as the “5-year look-back,” which many people have heard of.
There is a complex calculation to determine how long someone would be penalized from planning to receive Medicaid / Title 19 benefits if they did apply for Title 19 within five years of giving away any assets. But the bottom line is that the State does not want someone to give away their assets and then apply to the State for benefits if they have given away those assets in the most recent five years.
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What If You Pass Away Within The 5-Year Period?
So most people know about the cost of long-term care and about the five-year look-back. But what surprises me when I’m speaking to people about asset protection planning is that they believe that they have to stay alive for at least five years after transferring the assets.
What I tell everyone who believes this, is while we absolutely hope you will stay alive and healthy for many years to come, death is not the problem when it comes to asset protection planning.
Benefits of an Irrevocable Trust
Generally, our recommendation for asset protection planning is an irrevocable trust. There are many benefits to transferring assets into a trust rather than directly to children (protection from the child’s creditors, for one, including the most common, which is divorcing spouses).
A trust also provides for what happens to the assets after you pass. So if you die before or after the five-year look-back expires, the trust will take care of how the assets pass. The fact that you transferred the assets into an irrevocable trust for asset protection less than five years prior to your death does not affect the disposition to your named beneficiaries.
In fact, the trust makes distribution easier because the assets avoid probate since they are no longer in your name.
So, again, while our hope is that all of our clients and readers live long, healthy lives, dying within five years of executing an asset protection trust is not problematic. Please take that stress off your mind. We all have too many other things to worry about.
Joan Reed Wilson Esq. – Managing Partner
Practices in the areas of estate planning, elder law, Medicaid planning, conservatorships, probate and trust administration, and real estate. Admitted to practice in the States of Connecticut and California, she is the President-elect of the CT Chapter of the National Academy of Elder Law Attorneys (NAELA), an active member of the Elder Law Section of the Connecticut Bar Association, accredited with the PLAN of CT for Pooled Trusts, with the Veteran’s Administration to assist clients with obtaining Aid & Attendance benefits for long-term care needs and with the Agency on Aging’s CareLink Network.