Here's how you can preserve your assets

Posted

An irrevocable trust is one method to protect assets from the cost of long term care. With this type of trust, you need to consider potential pitfalls such as the five year “look-back period” on gifts and any income tax consequences of transferring certain assets into this type of trust.

In order for an irrevocable trust to be an effective tool for protecting assets from the cost of long term care, assets must be transferred into the trust at least five years (60 months) prior to an application for Medical Assistance (MA). Transferring assets into an irrevocable trust is considered a gift for MA purposes and can create a penalty period for benefits eligibility if transferred within this “look-back period.” Some assets, such as a tax qualified account, cannot be transferred into an irrevocable trust without having severe income tax consequences. Therefore, if the majority of your assets are held in a tax-qualified account, then you should not create an irrevocable trust to protect these assets.

Your home, however, can be transferred into an irrevocable trust to protect it from the cost of your long term care, but do not forget to keep taxes in mind. As long as the trust has the appropriate grantor trust provisions, then you can preserve the step-up in basis for your property that applies after you pass away, as well as the capital gains exemption that you would have on your primary residence, if you sell the house while you are alive. It is important to know that in order for the irrevocable trust to preserve assets, it must have specific provisions that have not been detailed here. Creating an irrevocable trust is not something to be taken lightly, engage an Elder Law Attorney in order to obtain the most appropriate advice.

Keystone Elder Law P.C. integrates the legal, financial, and care management issues of seniors and their families to allow for a comprehensive and holistic approach to meeting their varied and ever-changing needs. We serve as guides and advocates through the maze of legal, financial, and health care regulations pertaining to each family’s unique situation. Services include Medicaid and long-term care planning, wills, trusts, powers of attorney, and estate administration. *Certified as an Elder Law Attorney by the National Elder Law Foundation, as authorized by the Pennsylvania Supreme Court.