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Failing to Plan/Planning to fail… really? What’s the difference? According to the AARP more than half of adult Americans do not have a Last Will and Testament, the most basic estate planning document. If your reading this your probably amazed, but it’s true (I figure if you are reading this you’re at least a little bit interested in estate planning and presumably have a will). A lot of my clients (at least in the beginning of our relationship) have what I would call an “If I die” attitude. They plan or don’t plan based on the fact that they “might” die (that’s where the If comes in). The conversation typically goes something like this: “Well, if I die I would like my house to go to my daughter.” I chuckle a little bit and usually say something like “if you die… oh, you’re going to die.” Some clients are a bit shaken up by the fact that someone just told them, for the first time perhaps, that yes they are indeed going to take the big dirt nap. Hey, were all born with a “death sentence.” Death should not be dealt with like it is a distant abstract possibility, a dark horse candidate or a long shot. Your plan should reflect what happens when you die. So what happens if you don’t make a plan? Fear not, the State of Connecticut has a plan for you. Because you left no direction, the state’s intestacy laws will dictate where your assets go, and your assets may not go to who you think. Assuming that you do not want the State of Connecticut to “do the planning for you,” a properly drafted Last Will and Testament will ensure that your final wishes as to what happens to all of your stuff are honored.
Most people know someone who has received care in a skilled nursing facility (Nursing Home). Those same people, however, don’t think that they will ever end up in a Nursing Home.
A long term stay at a nursing home can be financially devastating for you and your family. Nursing home care at the rate of $300+ per day can quickly eliminate a lifetime’s worth of hard work and saving. Long term care in a nursing home can devour your savings and force your home to be sold at a “fire sale” price to pay for your care.
How would a long term stay in a nursing home impact your family and your finances? When faced with a long term stay in a nursing home typically there are three different sources that will pay for the cost. The first option is to have a long term care insurance policy in place. Long term care insurance is the best approach. It will pay for some or all of the expenses associated with long term care in a nursing home. The second option is to pay for the care with your own assets at the private pay rate ($300+ per day). Most people fall into this category, at least until they run out of assets. Once you nearly run out of assets a third option is available, Medicaid.
Medicaid will pay for many, but not all, of your expenses in a nursing home. However, it will start paying nursing home costs only after you have “spent down” your assets. A single individual must “spend down” all assets (including your home) to $1,600 before Medicaid will pay for nursing home care. This wipes out any legacy a person may have wanted to leave to his or her children, grandchildren, church, or favorite charity.
When people are faced with choosing between preserving their assets and paying for their care there really is no choice, unless the costs of long term care in a nursing home are planned for. Giving away your money (to a child, for example) before needing long-term care may sound like a good idea, but it can be risky. Children get divorced, sued, have creditor issues, or can become catastrophically ill. The assets gifted to your child could be lost through divorce, lawsuits, etc. and would not be available to you. Furthermore, due to restrictive gifting laws, you may not qualify for Medicaid because you gave your money away.
An Irrevocable Asset Protection Trust (IAPT) provides an opportunity for individuals, both single and married to protect their assets. These assets could be available to you at sometime in the future to pay for things that Medicaid does not, or for an individual’s spouse or as a legacy for future generations, without the risks associated with giving these assets away to another individual.
An IAPT is a legal entity separate from the person who creates it (the Grantor). It is created by signing a Trust agreement where the Grantor irrevocably transfers assets to a third person called the Trustee (often the Grantor’s children or other relative) who holds that property in Trust for the benefit of the people who are named as beneficiaries.
Timing is extremely important when establishing an IAPT. The name of the game is “Beat the Clock.” In order for an IAPT to work it must be set up well in advance of anticipated nursing home care. After the passage of enough time the assets held by the IAPT will be insulated from the ravages of a long term stay in a nursing home, as well as creditor issues, and lawsuits. Furthermore, the assets held inside of the trust will pass to your beneficiaries probate free and within weeks, as opposed to months if these assets were to pass through the probate process.
And now for the shameless plug:
If you would like to learn more about protecting your assets, Guertin and Guertin, LLC will be hosting informational workshops on this topic on April 29 at 10am and 3pm and on April 30 at 3pm and 6pm. If you would like to attend please call 234-7400 to reserve a seat.
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