Aging Myths 5 & 6
Myth 5: Income Protection Trusts are only for the aging rich.
FACT: WRONG! We get lots of questions about paying for long-term care, aging, and a lot of times about trusts in particular. First, it is up to you if you want to set up a trust to try to protect your assets as you age. Some do, some don't. The government leaves that up to you and so will I. This is in part why the government created the 5 year look back, for instance you can't get sick and then put all of your money away. I tackled some points below that are common questions, but different rules apply to different situations, states, etc. But, get started on asking questions and get on your way to planning.
What are trusts for? In general, trusts help protect the assets you have, avoid probate (making the courts step in to decide what happens to your estate) and help make sure that your wishes are followed.
i. Check the cost of setting up a trust. Make sure you are thinking about protecting more than the cost of establishing a trust. Anticipate costs now and over the course of five years in regards to later applying for Medicaid if that might be something you face later (many, many Americans do as costs of care skyrocket).
ii. Many times, putting your assets in a trust helps protect those assets from being used to pay for long term care expenses. For example, if you set up an asset or income protecting trust and wait the five-year look back period, those assets aren’t counted when applying for Medicaid. Even if you can’t wait the full five years, the time that your assets were in the trusts before you apply might count in your favor. But, not all trusts exempt you from avoiding paying long term care expenses. Be sure to check with your lawyer to see how your state handles trusts.
iii. Planning can make all the difference. If you are married, many assets can be protected with a trust. But, if you are single, sometimes you can only protect 40% to 70% of your assets even with a trust.
Even though they seem confusing, trusts are a powerful tool in protecting your assets, avoiding probating and ensuring your wishes are followed.
Myth 6: All trusts are created equal.
FACT: There are almost 40 different types of trusts and each one has a specific purpose. Medicaid counts some trusts differently than others, so it’s important to find the one/s that are right for you. That being said, different trusts can be worded to protect you from more than one circumstance. For example, you can have one trust that not only avoids probate, but also protects your assets.
i. Revocable or Irrevocable Trusts – are primarily set up to avoid the probate process and make sure that assets go where the authors want them to. These trusts can also sometimes oversee other trusts as well. If the trust can be changed, Medicaid often counts the assets as being able to pay for long term care. Typically, trusts that can’t be changed (irrevocable trusts) are treated differently, but again you need to be careful in your planning and in your assumptions.
ii. Some trusts can oversee other trusts. For example, you can have a living trust that oversees an income-protection trust so that your assets are protected and you have some flexibility in using some assets.
iii. Assets that are transferred into a trust become the property of the trust, hence why Medicaid doesn’t have to count those assets as part of your countable assets if the period has been long enough, etc. That’s why a trust is typically managed by a trustee, which can be you (this then may be used as countable assets), your children or a separate entity.
With all the different types of trusts that exist and changes in rules based on the state you live, it’s important to consult an expert to find out what works for you.
The team at Gentreo has more than 20 years experience in the eldercare industry. From home care and hospice and private duty to aging in place, they have helped create companies that are changing how Americans care for seniors.