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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 65, there is a 75% 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 exceed $10,000 per month.  While asset protection planning for Florida Medicaid is possible, even while in the nursing home, it may be best to look at setting up an irrevocable asset protection trust five years before you need long-term care.

Attributes of an Irrevocable Asset Protection Trust

  • Senior couple considering a irrevocable asset protection trustEstablished 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. Generally, your children are the lifetime beneficiaries.
  • 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 you want an Irrevocable Asset Protection Trust?

Most trusts created for estate planning purposes are revocable and changeable during your lifetime. This makes sense as most people want to maintain control of their assets for as long as possible. But, if you want to help ensure that your children receive an inheritance, then creating an irrevocable asset protection trust may be a good option.  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 brokerage accounts.  He has 3 children he trusts and that he wants to leave a legacy for.  After consultation with our office, he believes 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, but no trust princiap.  After five years, the trust assets are protected in the event dad goes into the nursing home and needs to apply for Medicaid. 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, meaning they can sell the assets tax free.

Here, Dad retained enough money to keep for his own enjoyment and he had his own pension and social security to live on. He created this trust to leave a legacy to his children, and he had a trusted family member to serve as trustee.  While not for everyone, irrevocable asset protection 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 – your assets should probably exceed $150,000 in creating an irrevocable trust
  • Trusted and responsible family member(s) to serve as trustee
  • Enough funds to make the cost of the trust worthwhile (i.e., probably having more than $150,000 in assets, if not more)
  • 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 - we would not recomment this type of planning for people without children, for instance

What about Protecting Your Homestead Property?

An asset protection trust may hold your Florida homestead property and protect it in the event you need to go onto Medicaid. Even if you do not have a great deal of assets other than your home, then it may be helpful to place your homestead property into an irrevocable trust. I have written a guide to Protecting Your Florida Homestead Property if you want to learn more.

Why not just give assets outright to the children?

There are a number of ways that irrevocable trust planning is better than outright gifting, which are generally:

  • If you just give assets to the children, the assets do not receive a step-up in basis upon your death
  • If you just give assets to the children, will they spend it before you die? Having all the assets in the irrevocable trust only be distributed to your children upon your death, while keeping it in one location until then, is likely better
  • If most of youar assets are placed in the irrevocable trust and you had a serious and unexpected downturn in health, the current trust beneficiary could terminate the trust and return the assets to you

What other options exist if we want to protect our assets from the nursing home?

If you do not want to lose control of your money, we have more on Medicaid planning options on this webpage. The basic answer is that you can:

  1. Purchase long-term care insurance or life insurance/annuity policies with long-term care benefits inside them. These options are generally more helpful than giving all of your money away, but you have to have assets to protect.
  2. Your basic estate planning. Make sure you have a good estate plan, such as creating a revocable living trust and a great durable power of attorney prepared by a Florida elder law attorney.

More Information on Asset Protection Trusts

We recently created our free guide to Irrevocable Asset Protection Trusts.  The information presented here is given with a more detailed explanation of Medicaid and VA benefits, among other matters.

Most trusts created by attorneys are revocable living trusts.  These trusts enable you to control your assets during your lifetime but also avoid probate upon your death. But standard 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 about estate planning and asset protection planning with no obligations.

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If you want to learn more about estate planning in Florida, including asset protection planning and irrevocable trusts, feel free to download a copy of my book the Top 20 Ways to Protect Your Florida Estate.



D. Rep DeLoach III
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