Saving the Farm - Part 2

In our last blog post, we discussed the need to plan ahead to protect major assets, often called “Legacy Assets” that people have inherited from their parents, and wish to pass down to their children. This type of planning, which is often called “Succession Planning” is desirable as a tool to ensure that the assets seniors have inherited or have accumulated through their hard work and labor goes, at death, to their loved ones and is not eaten up during life or death by either attorneys fees, probate or taxes or the costs of long term care.

Why do Succession Planning? Most seniors are concerned with the dual goal of providing for their children, grandchildren and other loved ones while also protecting their assets from being spent down for long term care. Succession Planning gives seniors the peace of mind in knowing they can accomplish these goals.

Succession Planning is accomplished by the use of a special type of an Irrevocable Trust. The primary purpose of the trust is to help achieve the client’s estate planning objectives. Often a trust is the central mechanism required to pass your assets to the people you want, when you want and how you want – all while maintaining control and protecting assets in case of catastrophic illness or need for long term care.

After meeting with the family and determining their estate planning goals, we set up an estate plan that helps the client achieve their goals. Although all families are different, the things that most people have in common are the following:

1. They want to protect their surviving spouse (if they are still living)
2. If anything is left at the second spouse’s death, they would like everything to go to their children
3. They want to keep Legacy Assets in the family.
4. If they establish a Trust, the senior would like to (a) retain income for life; (b) establish controls over how the funds are spent; (c) choose the trustee that controls the money and property.
5. If a trust is established, they would like for the trust to avoid risks associated with the children, such as creditors, bad marriages etc.
6. They would like for their family to receive any significant tax advantages to putting the money in a trust rather than outright transfers.
7. After the 5 Year-Look-Back Rule, the senior would be eligible for Medicaid.

By following this plan, seniors position themselves to ensure that the assets they have accumulated though their hard work and labor goes, at death, to their loved ones and is not eaten up during life or death by either attorneys fees, probate or taxes or the costs of long term care.

Saving the Farm - Part 1

In our last blog post, we were discussing the concept of asset protection, or as it is commonly asked, “How do I keep the Nursing Home from taking Momma’s farm” (or house, or money or whatever).

As we mentioned in that blog post, the Nursing Home doesn’t have the power to “take” anything. When you move into a Nursing Home, you are really just renting a room with nursing services included. If you rented a room for a night at your local Holiday Inn, the issue of “will I have to pay this” would never come up. You would know up front what the cost was and you would know that you had to pay for the room if you were going to stay there for a night.

The owner of a nursing home is like the owner of the hotel – he just wants to be paid for the room. He knows that there are 3 primary ways he will be paid: (1) If Mom goes to the hospital first, stays there for at least 3 nights, then is discharged to the Nursing Home, Medicare will pay for up to 100 days (see separate blog post on Medicare Qualification); (2) After Medicare runs out, the resident will “private pay” meaning personally pay for the room out of their pocket until they have spent much of their money or other assets . (See separate blog post on Medicaid Qualification); (3) After they have paid most of their money to the nursing home for rental of a room, and otherwise qualified, they Medicaid will start paying the nursing home bill each month.

Now, all of that was a pre-curser of what we’re talking about today, which is how to I protect what I’ve got so I don’t have to spend it all down to get Medicaid. The answer is to plan ahead, meaning - do your estate planning at least 5 years before you move into the nursing home. Of course you don’t know if or when that will happen, so you have to be proactive and do your estate planning way in advance.

On February 8, 2006, President Bush signed into law, the DRA (Deficit Reduction Act). Among other things, one of the provisions of the act was a 5 year look-back rule. This means that if you give your assets to your kids (or anyone else) within 5 years of the time you apply for Medicaid assistance, they can “look-back” and pull that gift up to today. The result is that Mom won’t be able to get Medicaid for a while (figure according to a complicated formula) as a result of having made that gift. If your parent is in that situation, there are things we can do, but none of them are as good as the results we can get if you plan ahead.

One great way we can be proactive, plan ahead and protect assets, such as the family farm, is by use of a special kind of Irrevocable Trust that we will discuss in Part 2 of this post