Irrevocable Medicaid Asset Protection Trust: Protection from Nursing Homes

February 28, 2018

When we meet with estate planningPlanning in advance of disability, incapacity, or death to make sure that key life issues have been addressed while the person is still of sound mind and able to understand and sign key documents such as Power of Attorneys, Power of Attorneys for Health Care, Wills, and Trusts to form a strategy and provide for the administration and disposition of his or her assets upon death or upon incapacity. clients for the first time, our estate planningPlanning in advance of disability, incapacity, or death to make sure that key life issues have been addressed while the person is still of sound mind and able to understand and sign key documents such as Power of Attorneys, Power of Attorneys for Health Care, Wills, and Trusts to form a strategy and provide for the administration and disposition of his or her assets upon death or upon incapacity. attorneys 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. discuss a number of options focused upon the clients’ situation and goals. For clients interested in Medicaid nursing home asset protection, we explore creating 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 for Medicaid asset protection, versus outright gifting of assets to the recipient**.

Setting the Stage for A Discussion of Irrevocable Medicaid Asset Protection Trust

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 created to protect assets from a nursing home has some potential advantages over outright gifting of assets directly to children. The complexities of Medicaid for nursing homes is more than we can adequately cover in this article. Moreover, we 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 (in this post) consider issues within the five-year-look-back period. For this article, the irrevocable trusts and gifting should occur at least five years before you need to apply for long term Medicaid to pay for nursing home or assisted living costs.

With those caveats in place, our estate planning lawyers have provided answers to a series of questions that we regularly hear.

Doesn’t a Revocable Trust Protect My Assets?

No, 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 your assets from a nursing home or assisted living costs. A revocable trust’s assets are considered owned by the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. creator. When applying for long term Medicaid to help pay for nursing home or assisted living costs, any assets in 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. be considered as “available” assets to the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. creator. Those 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. be expected to be used for nursing home costs.

Unfortunately, many professionals and others believe that 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. protect assets from a nursing home. The fact is that it is not that simple to protect assets from long term care costs.

What is Outright Gifting?

We use the term “outright gifting” to refer to gifting directly to the person receiving the gift. For example, deeding a house directly to a child or children. Or transferring a stock or bank account directly to a child or children. Outright gifts are not made to a trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries., but rather made directly to the child or children. The gift recipient is then the legal owner of the gifted house, money or stock. (By “child” or “children”, we mean offspring and not necessary a minor under the age of 18.)

What Are the Risks of Outright Gifting to a Child?

Outright gifting places the asset directly in a child’s or children’s names. As legal owner, that child has all of the privileges, responsibilities and risks of ownership. The risks of outright gifting include (but are not limited to) the following:

• A child could sell or spend the money gifted to him or her.
• A child could be sued, invest poorly, or the gifted asset could be lost through a divorce.
• If a child experiences financial difficulty, the gifted asset could be foreclosed upon or taken by a creditor.
• A child could pass away and leave the asset to a friend or a spouse, and not as you would have intended.

In short, there are many risks with placing assets in a child’s name that could result in the unintended loss of the asset to third parties.

What Are the Tax Disadvantages of Outright Gifting to a Child?

The most notable tax disadvantage are a risk of incurring capital gains taxes. This typically happens in one of two ways:

1. For assets that have increased in value, the outright gifting of assets to a child or children could result in unnecessary capital gains tax in the future. Without fully discussing “tax basis” and “basis step-up” upon death of an owner of appreciated assets, suffice it to say that gifting of assets that have increased in value may result in capital gains taxes upon the sale of the asset by a child or children. These capital gains taxes likely could have been avoided by not gifting the asset or by gifting the asset through a property structured Medicaid Asset Protection TrustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries..
2. When the child is gifted a house (principal residence) and then sells that house while the parent is still alive, capital gains taxes may be incurred. Those could be avoided via a trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. by taking advantage of the principal residence exclusion.

What is an Irrevocable Medicaid Asset Protection Trust?

An Irrevocable Medicaid Asset Protection TrustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. protects assets from the costs of long term care due to a long-term nursing home or assisted living stay. This specific trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. is very specialized, geared specifically to protect assets from nursing home expenses.

Creating 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 big step, since the settlorThe person or persons who create a trust. This person is often also called a Grantor. who creates the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. 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 be able to amend, undo or revoke the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries.. Assets transferred to the 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 are no longer owned by the settlorThe person or persons who create a trust. This person is often also called a Grantor.. They are owned by the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries., and controlled by the trusteeThe person or company named in a trust to manage property and assets of a trust. Usually a trust will name an initial trustee or co-trustees and successor trustees. A trustee has the duty to act in the best interest of the person for whom they are managing the funds and is considered a Fiduciary. Most people that set up Revocable Trusts to avoid probate, name themselves as Trustee and also name successor trustees to take over upon death or upon incapacity. of the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries..

So, a properly created trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. that protects assets from a nursing home results in the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. creator losing control over the assets placed in trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries.. In Wisconsin, most irrevocable trusts can be amended, undone, or revoked with the agreement of the settlorThe person or persons who create a trust. This person is often also called a Grantor., trusteeThe person or company named in a trust to manage property and assets of a trust. Usually a trust will name an initial trustee or co-trustees and successor trustees. A trustee has the duty to act in the best interest of the person for whom they are managing the funds and is considered a Fiduciary. Most people that set up Revocable Trusts to avoid probate, name themselves as Trustee and also name successor trustees to take over upon death or upon incapacity. and all beneficiaries.

Further, 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 for nursing home protection cannot allow the assets (principal) of the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. to be returned to the settlorThe person or persons who create a trust. This person is often also called a Grantor.. Essentially, the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. creator is locking the assets away from him or herself, allowing the trusteeThe person or company named in a trust to manage property and assets of a trust. Usually a trust will name an initial trustee or co-trustees and successor trustees. A trustee has the duty to act in the best interest of the person for whom they are managing the funds and is considered a Fiduciary. Most people that set up Revocable Trusts to avoid probate, name themselves as Trustee and also name successor trustees to take over upon death or upon incapacity. to manage and control those assets. As such, 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 must be thoroughly discussed and understood before creating and transferring assets to it.

What Are the Advantages of a Medicaid Asset Protection Trust?

There are a number of advantages to 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 that outright gifting doesn’t provide:

1. Assets are titled in the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. name, not in a child’s name. The trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. owns the property. If a child has financial, divorce or other issues, the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. can provide protection and control over the assets.
2. Assets for multiple children can be placed in one trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. and not owned by multiple children outright. The most trusted child or children or another person can be named as trusteeThe person or company named in a trust to manage property and assets of a trust. Usually a trust will name an initial trustee or co-trustees and successor trustees. A trustee has the duty to act in the best interest of the person for whom they are managing the funds and is considered a Fiduciary. Most people that set up Revocable Trusts to avoid probate, name themselves as Trustee and also name successor trustees to take over upon death or upon incapacity.. This avoids placing a child (or children) who is not trusted or is not responsible in charge of the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries..
3. The trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. can hold assets for children for long-term support needs. It can provide for what 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. happen if a child passes away while assets are still in trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries.. For example, a deceased child’s trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. share could be distributed to other children or grandchildren. They could also be held in trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. for a grandchild’s education or other support needs. A trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. could also make sure that assets are not distributed to a minor grandchild, the spouse of a deceased child, or back to the parent.
4. TrustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. assets that have increased in value can receive a “step-up in basis” at the death of the settlorThe person or persons who create a trust. This person is often also called a Grantor.. For example, a house placed in 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 that has increased in value can be sold after the settlor’s death without capital gains tax.
5. A trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. can allow the settlorThe person or persons who create a trust. This person is often also called a Grantor. to retain a “power of appointment” to change the beneficiaries through a 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.. Even though unable to amend the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries., the settlorThe person or persons who create a trust. This person is often also called a Grantor. can retain the power to change beneficiaries. This powerful feature also allows for some favorable tax treatment for the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries..

Outright Gifting or Irrevocable Trusts: Discuss with an Experienced Attorney

When to use 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, outright gifting, or deciding not to gift, is a complex decision. There is no one-size-fits-all method to protect assets from nursing homes.

Each person and family is unique in their circumstances, needs, and goals. Careful assessment of our clients’ objectives, family situation, health, and assets is the only way to create a proper estate plan. These factors 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. determine which approach is right for a specific client.

Our firm of estate planningPlanning in advance of disability, incapacity, or death to make sure that key life issues have been addressed while the person is still of sound mind and able to understand and sign key documents such as Power of Attorneys, Power of Attorneys for Health Care, Wills, and Trusts to form a strategy and provide for the administration and disposition of his or her assets upon death or upon incapacity. attorneys has helped generations of Wisconsin families protect their assets. We invite you to contact us to discuss if 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 for nursing home protection could be right for you and your family.

** For this article, we 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. assume that all gifts 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. be to a child or children. However, gifting is not limited to children.