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Irrevocable Asset Protection Trusts For Medicaid and VA Purposes

As we age, we have a greater likelihood of needing to spend time in long-term care. For those over age 75, there is a 50% chance that you will not be able to live alone for the rest of your life. When you have to move from your home, the costs for the nursing home can easily exceed $9,000 per month.  While asset protection planning for Florida Medicaid purposes is possible, even while in the nursing home, it may be best to look at setting up an irrevocable asset protection trust before you need long-term care.

Attributes of an Irrevocable Asset Protection Trust

  • Established by yourself or your attorney-in-fact five years before you apply for Florida Medicaid benefits.
  • You have no access to the trust principal during your lifetime.
  • You may maintain an income interest in the trust.
  • You name a trustee to manage the trust assets during your lifetime.
  • Assets in the trust protected after the five year Medicaid transfer penalty expires. 
  • Asset in the trust receive a step-up in basis upon your death, meaning your heirs can sell the trust assets tax free upon your death.

Why would I want an Irrevocable Asset Protection Trust?

Most trusts we create are revocable and changeable during your lifetime as most people do not want to give up control of their assets. But, if you want to help ensure that your children receive an inheritance upon your death, then this may be a good way to go.  Here is an example of this type of trust:

Dad, age 80, is healthy.  He has a home and about $500,000 in the bank and in some brokerage accounts.  He has 3 children he trusts and that he wants to leave a legacy for.  After consultation with our office, he decides that he trusts that his health will last at least for the next five years. With this, he establishes an irrevocable trust and retitles some $400,000 of his assets, including his home, to his trust.  His most trusted child is trustee of this trust, which distributes all trust income to Dad during his lifetime.  After five years, the trust assets are protected in the event dad goes into the nursing home. He trusts that Medicaid will now take care of him, which it will.  Upon Dad's death, the trust assets, now valued at $500,000 due to growth, are distributed equally to his children, who also receive the assets with a step-up in basis.

Here, Dad retained enough money to keep for his own enjoyment and he had his own pension. He created this trust to leave a legacy to his children, and he had a trust family member to serve as trustee.  While not for everyone, these trusts can be a way to make sure your hard-earned assets do not disappear to the high cost of nursing home/long term care.

Factors That Make an Irrevocable Asset Protection Trust a Good Choice

  • The size of your estate – the more money you have, the more helpful an irrevocable trust can be
  • Trusted and responsible family member(s) to serve as trustee
  • Enough funds to make the cost of the trust worthwhile
  • If you have appreciated assets (i.e., stocks and bonds that have gone up in value), this may be a good choice
  • A desire to leave or preserve a legacy to your family

More on Revocable v. Irrevocable Trusts

Most trusts attorneys create in their estate plans deals with revocable trusts.  These trusts enable you to control your assets during your lifetime but also avoid probate upon your death. But revocable trusts do not protect your assets from the high cost of nursing home care. This blog post has more on revocable and irrevocable trusts for your consideration, which also includes special needs trusts in Florida as well.

You can also learn more about Medicaid, Asset Protection and Irrevocable Trust Planning in one of our free monthly seminars. Sign up here to learn more.

Choose An Experienced Florida Trust and Elder Law Attorney

Not all estate planning attorneys know much about elder law and not all elder law attorneys are versed in irrevocable trust planning. Luckily, attorney Rep DeLoach is knowledgeable in both Medicaid planning, tax laws, VA benefits planning and more.

We offer a free initial consultation to help assess your present situation, future needs, and your wishes. You are also welcome to visit our legal library or attend one of our monthly seminars on Medicaid and asset protection planning.

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