What’s an asset protection trust? What’s a Trust?
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The Deficit Reduction Act of 2005 established a June 30, 2006 deadline for the Secretary of Health and Human Services (HHS) to release regulations for states to come in compliance with the new severe new restrictions on the ability of the elderly to transfer assets before qualifying for Medicaid coverage of nursing home care.
The law extends Medicaid’s “lookback” period for all asset transfers to 5 years, it was originally 3 years and changes the start of the penalty period for transferred assets from the date of transfer to the date when the individual transferring the assets enters the nursing home. Qualification to enter the nursing home is achieved when the individual is out of funds, meaning he/she cannot afford to pay the nursing home. The new federal law applies to all transfers made on or after the date of enactment, February 8, 2006. Any transfer made before February 8 falls under the old transfer rules. Exact enactment provisions are state by state, but it’s clear that non-compliance by 50 state legislatures puts their federal funding at risk.
You can protect yourself from the Medicaid nursing home care by taking action now while you still have your health.
You can reposition (transfer) your assets from you to an irrevocable trust with a truly independent trustee. The key is the “Independence of your Trustee.” The trustee cannot be any-one related to you by blood or marriage. And, you must be willing to give-up complete control over your assets. This lack of perceived control is the most difficult to achieve. Seniors have a deep sense of independence by their ability to control and manage their assets.
Revocable or irrevocable trust, what’s that mean? Revocable is when the original person with the assets transfers (repositions) the assets to a trust with strings attached. The tax lingo is “grantor-type trust. The “strings” when the original grantor (person with the assets) elects himself as the trustee, and the beneficiary of the trust. The grantor, the trustee, and the beneficiary are the same person. Effectively you have kissed yourself on the hand and blessed yourself as the pope. This simply will not work. Period.
An irrevocable trust is when the grantor (the person with the assets) gives-up complete control to an independent trustee who in turn will use his judgment as trustee to manage the assets for the beneficiaries of the trust. The fiduciary relationship of the trustee is to the protection of the assets at any cost. The trustee must protect and must diligently invest under the prudent man rules, he cannot ever deal for himself. The courts do not look favorably on dereliction of duties while serving as trustee. An irrevocable trust is the only significant asset protection device for avoiding the Medicaid spend-down provisions.
Asset protection from Medicaid requires foresight and a strong conviction to walk away from perceived control. Inaction is devastating. Seniors must use all their funds first, then qualify for the nursing home. It’s clear, that these new rules are designed to impoverish the healthy spouse.
Rocco Beatrice, CPA, MST, MBA, CWPP, CMMB, CAPP
Managing Director, Estate Street Partners, LLC
Mr. Beatrice is an asset protection, award-winning trust and estate planning expert.
