If 15 different lawyers are asked their thoughts on putting a house in a trust, you may get 15 different responses. However, after spending 12 years in Elder Law and Estate Planning, assisting individuals to protect assets, I believe your house should be put in a trust. This is especially relevant for retirees and soon-to-be retirees who want to protect their family’s money from nursing home and probate expenses.
The reason I entered estate planning and elder law because of a personal family situation. My grandfather lost money due to long-term care expenses, which could have been prevented. If asset protection was implemented by my family’s attorney, the assets would have been safeguarded. I get frustrated when clients tell me that another attorney suggested a simple Will is sufficient, because they are not wealthy. I strongly disagree with this idea, and fellow middle-class Americans should never assume that a simple will is adequate.
Why a Will is Not Enough
The purpose of a Will is to distribute assets after one’s passing. That is assuming there are assets to leave behind. However, due to the broken government system, paying for nursing home care in Pennsylvania could make you broke. As a result, there may be nothing to pass on to the children. The average cost of nursing homes is $160,000 per year, and Medicare does not pay. Unfortunately, while conditions like dementia are equally debilitating and serious, Medicare does not cover custodial long term care for dementia. This leaves Medicaid as the only payment source, besides paying privately.
Whether my wife has a home and some money in her retirement years, is almost entirely dependent on any health care issue I have. I am not taking any chances, and have taken action to protect our assets. Nobody works their entire life to save a nest egg, only to lose it to long term care expenses.
Medicaid Benefits
Eligibility for Medicaid benefits depends on an assessment of one’s resources. One may even need to spend down their assets to qualify. The Medicaid office may tell you that the healthy spouse can own and live in the home, while the sick spouse receives care in a nursing home. However, the Medicaid brochure states that if a person passes away after being in a nursing home, the state of Pennsylvania can make a claim against their home. This is known as the estate recovery program. In Pennsylvania, the estate recovery claim is limited to a probate estate, so the house would need to go through the Will. If an attorney suggests drafting a simple Will, it could mean that they do not understand the estate planning complexities.
While Medicaid benefits might seem like a solution for families, please consult with an estate planning attorney before signing any agreements. A nursing home admission has legal implications.
How You Can Protect Yourself
Utilizing a Trust enables you to protect assets from estate recovery and long-term care expenses. I strongly recommend putting one’s house in an asset protection trust. After five years in the trust, Medicaid cannot claim the house. Therefore, retirees and seniors should consider putting their house in a trust when they retire. Waiting until they need care in a nursing home, limits the ability to protect assets in the same way.
We realise that putting a house in a trust may not be suitable for everyone, especially if you may need to do a reverse mortgage on your home. A retired middle-class family owning a $300,000 home and $400,000 in retirement accounts or savings could benefit from putting their house in a trust. Given their financial situation, they are unlikely to need access to their home equity. This means they can protect the house from nursing home costs. Moreover, they can still control the trust and continue living in the house. When the house is sold, the proceeds from the house belong to the trust. The money is therefore exempt from long-term care expenses or estate recovery.
When Your House Is Not In A Trust…
Regrettably, many retirees who have not put their house in a trust have experienced significant losses. While most retirees can live at home and will pay less for lower tiers of home care, some are not so fortunate. Sometimes, the sick spouse needs to go to a skilled nursing facility for care. This means that the couple have to sell their house to cover the expenses, resulting in financial ruin. They are only eligible for Medicaid benefits after depleting their assets and going broke.
Providing FREE Education at our Three Secrets Workshops
I am hopeful that as more people get to listen to my radio show and become educated on estate planning matters, they take action to protect their family, money, and legacy. If you would like to learn more, please register to attend the FREE Three Secrets Workshops. During these workshops, we teach you about the estate planning “tools” and strategies used to protect assets. Registration for the workshops on our website: sechlerlawfirm.com/workshops. We look forward to seeing you there!
