There are many different tools in the estate planning toolkit, so there is an ideal solution for every situation that can arise. With this in mind, multiple different types of trusts can be established to satisfy advanced estate planning goals.
We will look at two of them here, and we will elaborate with a second installment in the near future.
A lot of people go through life assuming that the Medicaid program will never be relevant to them. They have health insurance through their jobs, and they will qualify for Medicare at the age of 65. Medicaid is for people with very sparse resources, so if you have always been on reasonably solid financial footing, it would logically be off your radar.
The above being stated, when you start to look into the eventualities of aging, you will see why Medicaid may actually be quite important to you during the latter portion of your life.
By the time you reach the age of full Social Security eligibility, your life expectancy will be at least 85 years. Approximately 40 percent of people that are 85 years of age or older have Alzheimer’s disease.
Clearly, many Alzheimer’s sufferers will spend time in nursing homes, and there are other reasons why elders require nursing home care. At the time of this writing, the typical cost for a year in a private room in a nursing home in the our area costs well over $150,000.
Unfortunately, Medicare will not pay for a stay in a nursing home.
Now we can come full circle with regard to the relevance of Medicaid. This program will pay for long-term care if you can gain eligibility, but since it is intended for financially needy individuals, there is an asset limit of $15,750.
There are some things that don’t count, like your home (but only under certain circumstances). One vehicle is not counted, and your heirloom jewelry, wedding ring, and engagement ring are exempt. You can also maintain ownership of your personal belongings and the items that you have around your house.
You can divest yourself of the assets that are countable to qualify for Medicaid, but you have to do this in light of the five-year look back period. Your eligibility is delayed if you give gifts within 60 months of the date of your application submission.
A very efficient way to get assets out of your own name so that you can qualify for Medicaid if and when it becomes necessary is through the creation of a Medicaid trust. Contrary to popular opinion, these trusts can be drafted with a tremendous amount of flexibility, and you do not have to lose control of your assets. However, assets owned in your Medicaid trust are not counted for Medicaid eligibility purposes, so you can qualify for Medicaid to cover the cost of your care without spending down your assets first.
Qualified Terminable Interest Property Trusts
If you have children from a previous marriage and you are getting remarried, especially if the marriage is taking place relatively late in your life, you may have an estate planning concern. You want to provide for your new spouse, but at the same time, you have to make sure that you protect the interests of your children.
Under these circumstances, a qualified terminable interest property trust (QTIP) can provide a solution. To implement this strategy, you fund of the trust, and you empower a trustee to serve as the administrator. Your spouse would be the first beneficiary, and your children would be the final beneficiaries.
At the time of your death, the trustee would be able to distribute the earnings from the trust to your surviving spouse for the rest of his or her life. The survivor could also use property that has been conveyed into the trust, such as a home. Your surviving spouse would not be able to change the terms of the trust in any way.
Upon the death of your surviving spouse, your children would assume ownership of the assets that remain in the qualified terminable interest property trust.
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If you would like to learn more about important inheritance planning topics so that you can take the right steps to protect your loved ones, download our estate planning worksheet. It is being offered free of charge, and you can visit the following page to obtain access to your copy: Estate Planning Worksheet.