Recently I hosted one of our Three Secrets Workshops, where I explain how you can protect your legacy. We were talking about irrevocable trusts in the workshop, and there was a lady who initially looked confused. A little while later she had a light bulb moment, and shouted out “Oh I see how it works! I want that trust!”
I was explaining that when you think of a Trust, it is like a company which has its own entity. There are revocable trusts and irrevocable trusts, and while there are many types of irrevocable trusts, they are used for different purposes. I understand the word ‘irrevocable’ may be off-putting, because it sounds permanent. However, that’s not necessarily how an irrevocable trust works. The trust that I recommend to many of my middle-class clients is an asset protection trust, which is a type of irrevocable trust. With an asset protection trust, you can maintain control of your money.
Don’t Go Broke in a Nursing Home
Maybe you are concerned that if you get dementia or have a stroke, and you need care in a nursing home, you will lose your assets. I am certain that if you were to get sick, you would want your wife to have a house to live in, and money in the bank. A goal many of my clients have, is being able to protect assets and avoid going broke. A nursing home costs $180,000 per year, and many people go broke paying for care before the government steps in to help. Nobody works 40 years to try to accumulate savings, only to lose their nest egg to a nursing home.
Why You Should Do Asset Protection
While we don’t know what the future holds, or whether you will get dementia, it doesn’t mean it should be doom and gloom for your finances. You would put your house into the asset protection trust, as well as some money. The grantor who creates the trust, can still maintain some level of control, with this type of trust. The ability to change beneficiaries of the trust is also possible. If you created a trust for the benefit of your children, but circumstances change, you can remove your kid and appoint somebody else as beneficiary.
You can also be a trustee of your trust, but you cannot be a beneficiary of your trust. This means you can’t take back whatever you put into the trust. You can stay in the house every night, even if you no longer own the house which is in the trust. Your assets are protected, so if you end up going to a nursing home, the state can’t take the house or whatever money you have put in to the trust.
Let’s assume that Fred and Wilma have their house in a trust and they have $400,000 in the bank. However, Fred goes into the nursing home and they spend $250,000 on care, to apply for Medicaid benefits. The money Wilma can keep is capped at $150,000. Unfortunately, this also means that Fred has to spend some of his income on nursing home care. They have not only lost $250,000, but the $3,000 monthly income is reduced to $2,000 a month. The $150,000 Wilma is meant to live on, is also dwindling away.
Maybe You Will Want This Trust Too!
As it happens, under the Medicaid regulations, the healthy spouse is allowed to own a house. By putting their original house in the trust, it means that Wilma technically doesn’t own the house. Instead, she’s living in the house owned by the trust. Since she can own a home, instead of giving the 250,000 to the nursing home, Wilma can buy a house and keep the $150,000. Essentially, they haven’t lost a penny to the nursing home.
Since Wilma is in her new house, the family can sell the original house and the money will stay in the trust. The family has access to the proceeds from the sale of the house, which could be $300,000. Now Wilma has a house, and money, and they are eligible for Medicaid benefits. All they had to do was put the house in a trust! This is why the lady in our workshop was so excited about the benefit of using an asset protection trust and why she shouted “I want that trust!”
We Are an Education First Law Firm
We love it when this happens in our workshop, because when people understand what we’re explaining, we feel we are educating and helping them. It is important for families to be able to make an informed decision about what would work for them in their situation. What is right for one person, does not necessarily meet the needs of another. Every family has a different financial situation and different dynamics.
If you want to do some trust planning, I encourage you to register and attend one of our Three Secrets Workshops. We will teach you about wills and trusts, and so much more. If you like what we teach you, we’ll tell you what working with our law firm looks like, and how to get a fantastic estate plan for a really good price. Register at sechlerlawfirm.com/workhops for our workshops. We host workshops in Southpointe, Cranberry and Monroeville. We hope to see you there!