Preserving Assets with an Irrevocable Trust
Preserving assets for a spouse or loved ones is a common concern for many. The thought of losing assets to cover the cost of potential long-term care can be overwhelming. Some have seen family or friends lose everything, and the thought of that can be devastating. Luckily, with careful planning, there is a solution that may provide comfort to those with assets they want to protect.
Medicaid is a government program that covers health care costs for those who cannot afford it, including the cost of long-term care. In the last year, there have been many changes in these Medicaid laws. Specifically, these changes have limited the options available to protect assets. When individuals have assets in excess of what the Medicaid limits allow, few options are available to qualify for Medicaid benefits.
An irrevocable trust may be the solution many are seeking. Outside of gifting assets to individuals, setting up an irrevocable trust may be the only alternative to protect assets from the cost of long-term care. After five years, assets funded to a properly drafted and managed irrevocable trust will be considered unavailable if a Medicaid application is made. These assets are then preserved for a spouse or loved ones.
An irrevocable trust can be structured so the Trustmaker can act as the Trustee, meaning the person creating the trust can still have control over the assets in the trust. For example, if a family cottage is the asset that an individual wants to protect, and is held in an irrevocable trust, the person setting up the trust can maintain full control over the cottage and use it just as it was used prior to creating the trust. However, the cottage, or the proceeds from the sale of the cottage if it is ever sold, cannot be distributed out of the trust to the Trustmakers. This limitation is what provides the protection.
Putting assets into an irrevocable trust is usually preferred over gifting assets directly to loved ones. When assets are gifted directly to children or other loved ones, you lose control over the assets. The assets are then subject to the person’s creditors, or if the person goes through a divorce, it could potentially be lost there. With an irrevocable trust, you can maintain control of the assets.
An irrevocable trust can also come with other benefits. It can be part of a plan to avoid probate, saving after-death costs and hassles for loved ones. It can also be structured so that all assets inherited by beneficiaries can be protected from their creditors, a divorce, lawsuits, bankruptcy, or their long-term care costs. If a beneficiary is receiving any federal or state disability, a special needs trust can be set up for them through the irrevocable trust, so the disability benefits are not disturbed.
Long-term care insurance is a great way to protect assets too, but most policies do not cover the full cost of care indefinitely. An irrevocable trust works great in conjunction with a long-term care insurance policy, as well as a great alternative for those who cannot afford a policy or do not qualify for one.
If you have assets that you want to preserve for your loved ones, consider setting up an irrevocable trust, which should be done before an emergency strikes.