A common goal among our clients, besides avoiding probate, is to create a plan that will protect their assets from a nursing home allowing them to pass savings to their children or heirs.  With this goal in mind, many of our clients have decided to do an Irrevocable Trust in case they ever need a nursing home in addition to their other estate planning documents. 

WHAT IS AN IRREVOCABLE TRUST?

An Irrevocable Trust is similar to a Revocable Trust.  They are both documents that designate where you want your assets to go and who you want to be in charge of distributing them.  However, there are a few major differences.  The Irrevocable Trust is, just that, irrevocable.  This means that the client cannot do a simple amendment to make a change.  Also, the client cannot be the trustee of this kind of trust like they would be under their Revocable Trust.  They have to designate someone else to be in charge of the money for them, this is usually a child or trusted friend.  Because of this, the 5-year look-back is triggered.  After the assets have sat in the trust for the 5-year period, they are 100% protected in the event the client, or their spouse, need a nursing home.

WHEN SHOULD YOU CREATE AN IRREVOCABLE TRUST?

Determining when to move assets into an Irrevocable Trust depends on your specific family situation.  Irrevocable Trusts are usually established by older adults who wish to protect their assets from nursing home expenses or qualify for Veterans benefits.  The Irrevocable Trust works particularly well for those older adults that are not pulling from their existing savings accounts.  These assets that are just sitting gaining interest get moved into the Irrevocable Trust, while leaving the day-to-day bank accounts unchanged.

5 YEAR LOOK BACK FOR MEDICAID

When we say Nursing Home pre-planning we are referring to planning in advance to protect your assets from a nursing home in case the need arises in the future.  Currently, Nursing Home Medicaid has a 5-year look-back.  This means any asset transfers or gifts made within 5 years of applying for Medicaid will be penalized.  Therefore, pre-planning must be done at least 5 years before going into a nursing home.  This type of planning provides our clients with peace of mind that they, and their spouse, will always be taken care of.

In order to gain nursing home protection, the assets must be moved 5 years prior to applying for Medicaid.  By placing assets into an Irrevocable Trust five years ahead of the actual need for nursing home care, the older adult protects his or her assets from nursing home costs and preserves the assets for the benefit of named beneficiaries, all while still remaining eligible for Medicaid benefits.  However, in the event nursing home care is needed within 5 years of transferring assets to the Irrevocable Trust, the trust document will also spell out specific instructions for releasing funds and assets to the beneficiary to preserve the older adult’s Medicaid eligibility.

3 YEAR LOOK BACK FOR VETERAN’S BENEFITS

For years advisors have been doing Veteran’s Benefits planning with trusts to help people qualify for benefits.  Clients were able to create an Irrevocable Trust and move assets into it to become qualified for VA Benefits.  The difference now is that you must do this trust 3 years prior to needing the VA benefit.  For so long, applicants were able to wait until the need arose, create the trust, move money, and apply.  Those days are gone.  The new regulations require you to create the trust, move the money, let it sit there for 3 years, and then apply for benefits.  Therefore, planning with Irrevocable Trusts still exist; however, applicants that want to take advantage of the VA benefits will need to do it sooner than later.

Estate Planning can be confusing and difficult to navigate.  The attorneys at SSR Law Office are trusted Elder Law & Estate Planning attorneys and can help explain and maximize any benefits you may be entitled to in the future.  Call us today at (586) 239-0871 to schedule a consultation to discuss your family’s options.