Using Trusts to Protect Assets from Nursing Homes

July 27, 2011

This post is the first in a two part series covering the financial advantages of Irrevocable Income Only Trusts. Part Two covers Important Considerations for Irrevocable Income Only Trusts

At Wokwicz Law Offices, we routinely meet with our clients to plan how best to manage their expenses. This sort of review is particularly important when our clients are considering long-term nursing-home care and how to qualify for Medicaid or Medical Assistance for that care, while still protecting financial assets for loved ones.

Although gifts frequently come to mind as an option, outright gifts to children are often not the best technique to protect one’s assets. In fact, gift giving can expose assets to abuse by a greedy child or child’s spouse, or encountering creditor risks if the child is sued, is involved in an accident or runs up debt. You don’t want to lose your house or savings as a result of financial or circumstantial issues that your child may encounter.

Another common approach is to use a “life estate” plan to protect a house or cabin from nursing home costs. However, this solution often places the house in the name(s) of a child or children, which may not be ideal in certain situations.

Introducing the Irrevocable Income Only Trust

A power and flexible technique that many of our clients have utilized to protect their assets is to use a properly drafted Irrevocable TrustA trust that cannot be terminated, revoked or amended by the creating person. In Wisconsin and in estate planning an irrevocable trust can refer to a trust that is set up to protect assets from a nursing home and Medical Assistance if prepared and funded well in advance. See Using Trusts to Protect Assets from Nursing Homes, known as an Irrevocable Income Only TrustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. or an Income Only TrustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries.. The use of these specially drafted trusts has become increasingly popular as a tool to protect your home and other assets from nursing home costs.

While protecting one’s assets from nursing home costs, an Income Only TrustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. is still able – as the name suggests – to provide income to the individual establishing the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries.. It also allows that same individual to qualify for Medical Assistance or Medicaid. Thirdly, Income Only Trusts go a long way to help avoid probateThe court process proving the validity of a Will and conducting the orderly Inventory, Accounting, and Administration of a decedent’s assets under a Will or under Intestacy laws if there is no Will. The probate process in Wisconsin typically takes between six to twelve months in Wisconsin and can take longer in some cases. Probate can be avoided by proper Estate Planning and through the use of beneficiary designations, Transfer on Death Deeds, Marital Property Agreements and Trusts..

Although similar to an Income Only TrustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries., a Revocable TrustA trust created during lifetime that can be terminated, amended, or modified by the person creating it. A Revocable Trust is often used in Wisconsin to avoid probate and provide for the orderly and proper distribution of assets upon death of its creator and to provide for management of assets and property if the creator of the trust becomes incapacitated. willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. not protect assets from the nursing home in most situations, because the creator of the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. retains the right to revoke the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. and thus, can receive the assets back from the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries.. Accordingly, an Irrevocable TrustA trust that cannot be terminated, revoked or amended by the creating person. In Wisconsin and in estate planning an irrevocable trust can refer to a trust that is set up to protect assets from a nursing home and Medical Assistance if prepared and funded well in advance. See Using Trusts to Protect Assets from Nursing Homes is a more secure tool in protecting assets from a nursing home, specifically because it is irrevocable.

In order to qualify for nursing home protection, an Irrevocable Income Only TrustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. cannot allow the person setting up the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. to receive the principal asset back from the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. “for any reason”. Still, that person can receive income from the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries.. By transferring assets, such as a house, cabin, stock, or bank accounts to an Income Only TrustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries., the one who established the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. can still use the house and receive income from stock and bank accounts. Meanwhile the assets willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. still be protected from the nursing home.

Irrevocable Income Only Trusts can be very useful tools to keep your assets protected while allowing you the income and access to nursing home care that you need. Please check back in two weeks for our overview of some important details of Irrevocable Income Only Trusts.

We welcome you to contact Wokwicz Law Offices to discuss if an Income Only TrustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. is right for you. Our skilled and experienced attorneys look forward to your call.