What are Asset Protection Trusts?


What are Asset Protection Trusts?

A Simple Will is not Enough

My law firm meets dozens of families every month, and after 10 years of me doing this, most families have common concerns. They want to maintain control, they want to be smart about taxes and they want their kids to get the money. Knowing that those are the goals, and also that nursing homes cost $180,000 a year in this state, this is the biggest threat for middle class Americans. Sadly, nobody is planning for this.

Before becoming educated about asset protection trusts, a lot of people think that if they get sick, they will have to go broke in a nursing home, at a cost of $180,000 a year. The government doesn’t start paying until you run out of money, and it’s not the nursing homes’ fault that they are expensive. The problem with long term care expenses, is that we have a government system that will allow you to lose everything that you’ve worked for your entire life. It doesn’t seem fair that you should be penalised for getting Alzheimer’s and needing long term care.

So many lawyers believe that all you need to have is a simple will, but I disagree. I’m seeing people with simple wills going broke, because of the high cost of nursing homes. Given that one in three of us is going to end up with dementia, besides all the other health care issues, we might need long term care, and will need more than a simple will.


Don’t Make these Mistakes

Traditionally, a family would sit around the kitchen table to discuss ways to save the house from long term care expenses. Mom and dad might want to give their child their home, so they ask some lawyer to draw up the deed. Unfortunately they have not sought legal advice, and while the kid owns the house, this is a mistake for three main reasons.

The first is when mom and dad put their house in their kid’s name, they have given up control. If their kid goes through a divorce, or he dies before his parents do and he’s left the house to his wife in his will, mom and dad would have nowhere to live if the daughter in law remarries. It could be that your kid has a disability later on in life, or they have a gambling problem, or even that your kid develops a drinking problem. These are just some reasons why giving up control of your own money might be a huge mistake. 

The second reason is that it’s probably a tax mistake, from a capital gains standpoint, as your kid may have to pay hefty tax.

The third reason is that Medicaid has a five year look back period, and if you get sick in the next five years, you have a problem if you have gifted assets. This may affect your eligibility for admission to a nursing home where Medicaid would pay.


Why You Should Consider Using a Trust

A trust is a valuable tool which will work to protect assets against long term care costs. A trust is a legal entity, and the only place it exists physically is in the paperwork. For the trust, you need to name a few people who will control the trust. The person who creates the trust is the grantor or settler. The person in control of the trust is the trustee. The people who can access the assets that are in the trust, are beneficiaries.

There are multiple types of trusts, and the most common trust used in estate planning is called a revocable trust. People use revocable trusts to avoid the courthouse and the probate system when they pass away. You would create the trust and you transfer ownership of your things to this trust. You will be your own trustee for this trust, and you can use the money however you wish. This is because you are also the beneficiary of the trust assets. Please bear in mind that if you have access to your money, the creditors and predators also have access to it.


Why Use an Irrevocable Trust?

If you’re concerned about this, I urge you to consider using an irrevocable asset protection trust. People are wary because they interpret ‘irrevocable’ as something permanent and unchangeable. This is however not necessarily true with all irrevocable trusts. When we create a trust, we put in terms and conditions around what the trustee is permitted to do. We can also stipulate when the beneficiaries are allowed to access the money in the trust. There are ways where you, the creator of the trust, can maintain certain control. 

With an asset protection trust, you deny yourself access to your own money, however you can still be your own trustee.  As a trustee, you can still be in control of the trust, make all the decisions relevant to the house. Moreover, you can decide how your money is invested.

You cannot write yourself a check because you are not a beneficiary of the trust. If your children are beneficiaries you can write a check for them. If you don’t have kids, there must be somebody who you know who would be a beneficiary. You could write a check for them, to allow the family access to money from the trust. This means you are not having to give up too much.


The Benefits of the Asset Protection Trust
  • Maintain control of your assets. 
  • You are the decision maker with regard to the investments around your assets. 
  • Sleep in your own home every night for the rest of your life. without worrying about losing your home.

This is a tax-favourable way for you to maintain control, and protect your assets from the nursing home. With a trust we also have a five year loopback period, but we have ways to fix it. If your money is in the trust, you didn’t lose it to your kids divorces, disability or death. It is much safer to accomplish the objective that people have, to maintain control, with a trust. 

To find out more about it, you should come to one of our workshops in our office in Cranberry. I’m going to teach you all that you need to know about these tools, and offer you a free consultation. You would spend time with one of our lawyers and discuss whether the trust is right for you. If it is , we tell you what it costs. We are a 100% flat fee law firm. You’ll have all the information you need to make a good decision which is our goal.


Contact Us

If any of this resonates with you, please go to our website sechlerlawfirm.com. Here you can register for one of our upcoming workshops. Call us at 724 989 9290. I pledge to give you the information you need to make a good estate planning decision. You’re going to get quality education about your options, to make the biggest decision of your life.