Medicaid Trust

Which revocable or irrevocable trusts allow you protection from the dreaded nursing home expenses?

"Do revocable or irrevocable trusts help qualify for Long Term Care Medicaid?"

That is the question we often get from clients and prospective clients who are concerned that they will lose their savings and home if they wind up in a nursing home facility.

There are many different kinds of trusts, but often people tend to break them down into two types: revocable and irrevocable.

Regarding revocable trusts, the Louisiana Medicaid Eligibility Manual could not be much clearer, "The entire corpus of a revocable trust is counted as an available resource to the individual."

Revocable trusts have never been used to protect assets from nursing home expenses. Revocable trusts are, however, used extensively for Succession / Probate avoidance purposes. And quite frankly, when the revocable living trust works like it should, it's a wonderful thing for the survivors of the person who set up the trust. When the person who set up the trust (Settlor) dies, the Successor Trustee (often a family member) can immediately disburse assets to the trust beneficiaries (often the children) without any of the attorney and court involvement, expense, and delay associated with a court-supervised probate process.

Regarding irrevocable trusts, it is important to note that not every irrevocable trust offers nursing home protection and Medicaid eligibility. An important provision in the Louisiana Medicaid Eligibility Manual provides, in pertinent part, that, "The portion of the corpus that could be paid to or for the benefit of the individual is treated as a resource available to the individual..."

There are several other factors that affect Medicaid eligibility when someone has established an irrevocable trust, but clearly of the trustee can pay corpus to or for the individual seeking Medicaid eligibility, then the trust assets will need to be spent prior to eligibility.

Some parents, in order to protect assets, establish an irrevocable trust and provide in the trust instrument that a trustee may make distributions to or for the children of the Settlor of the trust.

Here's my words of warning regarding Medicaid eligibility. Seek out good legal help in your area. Medicaid is a combined state and federal program, so you must work with someone who is well-versed in your state's eligibility provisions. Don't try this at home on your own. Get it right the first time.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

The Amendable But Irrevocable Trust

Is it possible to amend, modify, or change the provisions of an irrevocable trust?

All trusts can be classified as either revocable or irrevocable. The #1 reason people create revocable trusts is to hold title to assets in a way that you keep total control but eliminate the attorney and court-involved probate process when you pass away. Quite a bit is written about using revocable living trusts to avoid probate, so that is not the topic of this post.

Irrevocable trusts, however, are created for many different reasons: avoid taxes, lawsuit protection, and nursing home protection, just to name a few.

The word "irrevocable" scares many consumers, but it may not need to. Someone can establish an "irrevocable" trust, yet reserve the right to modify certain terms of the trust after the trust is created.

Here's an example: Parent sets up a trust. Parent is referred to as the "Settlor." In the trust instrument, it states that "X" is the trustee of the trust. It further states that "Y" and "Z" are the principal beneficiaries of the trust. The trust states that the trustee may distribute principal to the principal beneficiaries during the lifetime of the Settlor. The trust instrument further provides that when the Settlor dies, the trustee shall terminate the trust and distribute the principal to the principal beneficiaries.

Then, the trust instrument further provides that the Settlor can replace the trustee, and the trust instrument also provides that the trustee can replace the principal beneficiaries. Now you have an irrevocable trust where the Settlor has expressly reserved the right to modify certain provisions of the trust, yet there are some provisions of the trust that the Settlor cannot, under any circumstances, modify.

Fueling this concern over the inflexibility of irrevocable trusts is the fact that back in the 1990's, most irrevocable trusts were set up to avoid the 55% estate tax on assets that exceeded $600,000 in value at death. Settlors of those irrevocable trusts almost never reserved the right to modify those trust provisions for fear that the "right to modify" would cause the trust assets to revert back to the estate of the Settlor.

But since we now have an $11.4 million estate tax exemption, and portability between spouses, married couples can exempt $22.8 million in assets from the estate tax. Moving assets out of the estate to avoid estate tax just isn't a concern any more.

Now, irrevocable trusts are established for a variety of reasons: yes, tax avoidance is one. But so is lawsuit protection, nursing home protection, and many other reasons. But you need to be very careful when you are attempting to take advantage of trusts and other legal strategies to gain these protections because the slightest alterations of wording can have adverse tax, creditor protection, and Medicaid eligibility consequences.

So, in summary, an irrevocable trust does not need to be as scary as it first sounds, due to the fact that you can reserve the right to modify certain provisions, but you will want to tread carefully.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

Dave Ramsey Says OK to Give Assets Away to Avoid Tax, But Not to Protect From Nursing Home

When seniors are either uninsurable for long term care insurance, or they make a conscious decision to avoid purchasing long term care insurance, they have a decision to make regarding potential future nursing home expenses.

And America disagrees with Dave Ramsey regarding his stance on paying for nursing home costs.

First of all, I like Dave Ramsey and his message regarding getting and staying out of debt. I also like his message about living within your means and saving for a rainy day. His message is contrary to the commercial messages people see and hear daily encouraging people to borrow and spend.

Dave Ramsey despises the estate tax. I'm sure Dave encourages all taxpayers to take advantage of tax laws like the mortgage interest deduction, the business expense deduction, and the charitable deduction to keep as much of their money in their pocket and send as little to the government for redistribution. Regarding the estate tax, I'm sure Ramsey would encourage people who are subject to the estate tax to give away as much as they can to avoid the 40% tax, and keep the family wealth "in the family."

But when it comes to nursing homes, Dave's advice is different. He suggests that you never take a penny out of your name, or re-title an account or an asset. He says if you have money you should spend it all on your care. Don't dare engage in any activity, even though it is permissible, to protect your estate from long term care costs, he says.

Here's an example. Let's say Couple A and Couple B live in the same street and all four individuals are 72 years old. Each couple has $460,000 in life savings, and each couple has a home worth $160,000. Annual nursing home costs in their state are $80,000 per person per year.

Couple A listens to Dave Ramsey and they keep everything in their name. Five years later, at age 77, both husband and wife enter a nursing home. They must spend their $460,000 in life savings on their care down to less than $3,000 - it takes them three years to do this because they are spending $160,000 per year. They then qualify for Medicaid. They live one more year in the nursing and they both pass away after residing in the nursing home for four years. After the die, Medicaid pursues its Estate Recovery rights, forces the sale of the home to reimburse Medicaid for the $160,000 of expenses it incurred. The family gets ZERO.

Couple B ignores Dave's advice and takes estate planning action to protect their savings and home. Five years later, at 77, Couple B enters the nursing home and qualifies for Medicaid. Four years later, just like Couple A, Couple B passes away. The children of Couple B now share the $640,000 of assets that Couple B had worked for, paid taxes on, and saved.

Dave Ramsey implies that what Couple B did was fraud. But it's fraud when, for example, you remove all of your assets from your name one month or one year before applying for Medicaid and you lie about it. But the government says it is permissible to engage in Medicaid planning, so long as you engage in it at least five years before applying for Medicaid.

I find it odd that Dave Ramsey would encourage people to take advantage of all tax deductions available to keep assets in the family while still taking advantage of the services the government has to offer, but don't dare move a penny of your assets in order to protect it from privately paying for nursing home costs - particularly when the government says it is ok to do so, as long as you follow their rules.

Again, I like Dave Ramsey's message on being debt-free and avoiding debt, but America does not think it is fair when those who carelessly spend everything get a 100% free ride for their long term care costs, while those who scrimp and save and accumulate a few hundred thousand dollars must get wiped out if they must reside in a nursing home.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

2019 Medicaid Asset Limit Updates

Every year the State of Louisiana's Department of Health adjusts certain Louisiana Long Term Care Medicaid asset and income limitations for Long Term Care applicants and recipients. The following is a summary of the changes made for 2019.

The Long Term Care Resource Limit for Single Individuals ($2,000) and Married Couples ($3,000) has not changed.

The Spousal Resource Standard has increased from the 2018 amount of $123,600, to the 2019 new limit of $126,420. What this means is that if one spouse is in a nursing home (the "institutionalized spouse") and one spouse still lives in the community (the "community spouse"), the the community spouse can retain up to $126,420 of Countable Resources. The rationale is that the spouse who is not in the nursing home needs assets to live off of.

Note that the Louisiana Home Equity Limit has increased from $572,000 in 2017, to $585,000 for 2019. Most people realize that the home is not a countable resource - it is an exempt asset. But what some don't realize is that when a Medicaid recipient dies, the State of Louisiana has Estate Recovery Rights which allows the State of Louisiana to force the sale of the home to reimburse Medicaid for what Medicaid spent on the deceased Medicaid recipient's care.

However, if the home, at the time of Medicaid application, is worth more than $585,000, then the applicant will not qualify for Medicaid due to Louisiana's Home Equity Limit of $585,000.

Regarding monthly income, the new Spouse's Maintenance Needs is $3,160.50 of monthly income. Generally, the Community Spouse will be permitted to keep the first $3,160.50 of the couple's monthly income. Exceptions to this rule apply, however, so work with the right estate planning attorney to protect as much of your assets and income as possible.

Finally, the Average Monthly Cost for Private Patients of Nursing Facility Services increased on March 1, 2018 from $4,000 to $5,000. This means that if you make an uncompensated transfer within five years prior to applying for Medicaid, you will be assessed a penalty period of the value of the transfer divided by $5,000.

Note that this post does not address any of the planning strategies that are available to help people protect what they own, nor is it an in depth discussion of the Medicaid definitions, such as countable resource or exempt asset, nor do these figures apply to all 50 states - each state is different so if you live outside of Louisiana, make sure you are working with the correct figures.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

Protect IRA From Nursing Home: Medicaid Planning

Often, when an individual enters a nursing home, a determination is made regarding whether they will be a private pay patient or a Medicaid recipient while in the nursing home. One part of the Medicaid application process revolves around the Medicaid applicants assets.

An individual often owns exempt assets and countable resources. Common exempt assets include a home and one vehicle. Countable resources include most other assets, including bank accounts, stocks and bonds, non-home real estate, and LLC interests.

The question often comes up as to whether an Individual Retirement Account (IRA) is a countable resource.

The Louisiana Medicaid Eligibility Manual provides, in pertinent part, "Count funds in an IRA as a countable resource."

When people pre-plan for a future Long Term Care Medicaid eligibility, they often transfer title to their assets to either other individuals or to certain types of trusts. While it is fairly simple to transfer title of real estate, investment accounts, and most other assets, it is not possible to transfer ownership of an IRA to others or to a trust.

Some people consider taking a large distribution from their IRA, paying the taxes, and then protecting the after tax proceeds, but this often requires the IRA owner to pay a huge income tax bill and most people don't want to do that  - I don't blame them.

We often tell people that while you are fortunate to have an IRA, you are kind of "stuck" with it for nursing home purposes.

But know that strategies exist to protect the funds in your traditional or Roth IRA, but most of those strategies require that you plan years in advance of entering a nursing home - so it's critical that you get armed with the possibilities and take sufficient action to protect those funds.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais
Louisiana Estate Planning Attorney
www.RabalaisEstatePlanning.com
Phone: (225) 329-2450

Arranging a Louisiana Estate for Asset Protection and Easy Inheritance

This post describes how Irrevocable Grantor Trusts are used to protect assets while parents are alive, and then to provide for an easy transition or inheritance to the children or other heirs.

As folks age, they often worry that they will run out of money before they die due to their longevity and all of the threats that seniors face these days.

Many seniors create trusts to help protect what they've worked for. They often keep some assets in their name, and they transfer other assets to a trust that they create.
 
Because their assets are titled in the right kind of trust, with the right kind of asset protection provisions, they are less likely to lose these assets from some kind of life-changing event.

These asset trusts are often irrevocable, but sometimes certain aspects of the trust are amendable. These trusts typically allow for trust assets to be sold and re-invested. These trusts usually have some provision for distributions of principal. Many of these trusts and estates are arranged so that probate is avoided at the death of the Settlors/Grantors/Trustors.

Check with the right estate planning attorney in your jurisdiction to make sure you establish an estate planning legal program that is right for you and your family. Don't try to do this yourself. Too much is at stake.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais
Louisiana Estate Planning Attorney
www.RabalaisEstatePlanning.com
Phone: (225) 329-2450

Rules on an Irrevocable Trust and Nursing Home Medicaid

This post describes the regulations that exist regarding when assets in a trust are considered resources of someone who is applying for Long Term Care Medicaid.

Many Seniors are concerned about the cost of long term care, especially if it is necessary that they spend months or years in a skilled nursing facility.

Some Seniors explore getting assets out of their name timely to make themselves eligible for Medicaid. These same Seniors, however, are uncomfortable putting assets in their children's names for fear of losing control of the assets, and for fear of giving their children unwanted tax consequences.

Some people explore putting assets in trust for purposes of gaining future Long Term Care Medicaid eligibility. The Louisiana Long Term Care Medicaid Eligibility Manual (the "Manual") has specific rules regarding whether trust assets are considered a resource of the Medicaid applicant, rendering them ineligible for Medicaid benefits.

Regarding when the Medicaid applicant is a trustee of a trust, the Manual provides:

"Count the trust as a resource, regardless of whose funds were
originally deposited into the trust, if the applicant/enrollee:
 is the trustee, and
 has the legal right to:
- revoke the trust, and
- use the money for his own benefit."

Regarding when the Medicaid applicant is a Settlor of a trust, the Manual provides:

"Count the trust as a resource if the applicant/enrollee is the settlor
(created the trust) and:
 has the right to revoke it, and
 can use the funds for his own benefit"

Regarding when assets are not considered a resource and penalty periods apply to the transfer of the assets to a trust, the Manual provides:

Consider penalties under the transfer of resource policy (refer to
I-1670 Transfer of Resources For Less Than Fair Market Value) if
the applicant/enrollee:
 created the trust,
 does not have the right to revoke it, and
 cannot use the principal for his own benefit.

The traditional "avoid probate" revocable living trust clearly is a resource for a Medicaid applicant. Many people, however, create other trusts, and transfer assets to those trusts, which can enable a Senior to avoid the risks inherent in transferring assets during into children's names, while starting the five year penalty period and protecting assets from the nursing home spend down.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais
Louisiana Estate Planning Attorney
www.RabalaisEstatePlanning.com
Phone: (225) 329-2450

A Last Will and Testament Ain't Asset Protection

Was working with a Louisiana couple that came in to discuss getting their estate legal affairs in order. While different people have different priorities when it comes to estate planning (taxes, nursing home expenses, probate, blended families, children who spend, disabled children, in-laws you don't like, protect grandchildren, who will be in charge, health care decisions, to name a few), this couple perceived their biggest threat the potential to lose their savings and home to nursing home expenses. One of the spouses had an illness that didn't pose an immediate threat to independent living, but there is certainly the likelihood down the road that long term care will be needed.

One of the spouses, who was not real educated, mentioned on one or more occasions something like, "While I kinda heard that when it comes to estate planning, all you need is a Will." 

I get that in coffee shops and in barber shops people give advice to their friends and colleagues. But when it comes to the intricacies and varied issues involved these days, one-size-fits-all advice just doesn't work.

Obviously, if you write a Last Will and Testament, you are going to leave all of your assets in your name. If you have assets in your name and you go into a nursing home, you must spend your assets first before Medicaid pays for the care. They let you keep your home but Medicaid will have Estate Recovery rights so that when you die, your home must be sold to reimburse Medicaid for what they spent on your care - after you spent all of your own money.

Because there is uncertainty in life, I don't know how this family's story will end. They've worked hard to accumulate what they have. It sounds like their children and grandchildren could really benefit from an inheritance. But only time will tell what will happen in the future.

Paul Rabalais
Estate Planning Attorney
paul@RabalaisEstatePlanning.com
Phone: 866-491-3884

4 Estate Planning Tips For 2018

2018 brings some changes to the estate planning horizon. The following are four tips that you can take advantage of to protect your estate in 2018.

(1) Taxes. With the new law changes, there will be less emphasis on gift and estate tax avoidance, and more emphasis on capital gains tax and income tax avoidance. Smart married planners will ensure that their estate gets the valuable "double step-up in basis" (doesn't happen automatically), while other smart planners will arrange their affairs so that they and their heirs and beneficiaries minimize the income tax burden of a transfer of retirement accounts and other valuable assets.

(2) You're Living Longer. Because you are living longer, you need to protect your estate if you get sick for a prolonged period, or, if your mind becomes demented. Arranging all of your assets so that your trusted loved ones have access when you can't, and, for some, protecting your estate from nursing home poverty, is critical. To protect your estate from when you are sick, you must take action while you are well.

(3) Simplify Your Estate Settlement. Many Louisiana families want to arrange their estate so that judicially-supervised court proceeding (some call it "Probate;" other Louisianians call it "Succession"). Whether it's utilizing a revocable living trust or other probate avoidance strategies, act in 2018 to make estate settlement simple. In addition, have conversations with participants in your estate settlement - before your estate settlement. This can go a long way toward having an amicable estate settlement.

(4) Get Started. Procrastination is a big obstacle to estate planning. Put it on your "To Do" list, and then get started so you can check it off your "To Do" list. You'll feel great knowing you have all your legal affairs in order for yourself and your family.

Happy New Year! Make 2018 your best ever.

Paul Rabalais
www.RabalaisEstatePlanning.com
Law Office locations: All over south Louisiana
Toll-free phone: 866-491-3884

Louisiana Man Protects House Proceeds FOR Grandchildren and FROM Nursing Home Costs

Hoping you can benefit from my vlog by hearing stories about what others have done and then realizing you can do the same to protect what you have for yourself and your loved ones.

I'm working with a gentleman who just sold his house and will likely be renting for the rest of his life. He's handicapped and he has no family nearby that can help take care of him - he's convinced that if his condition worsens one day in the future, he'll need to reside in a nursing home.

He has three grandchildren that he adores. He wants to make sure that his money stays protected for his grandchildren to benefit from one day. When I inquired whether he was concerned about losing the money to the nursing home, he said that was his #1 concern.

So we are in the process of setting up a trust for him - a very particular kind of trust - so that if he does go to the nursing home, that his money is protected. Note that the typical "avoid probate revocable living trust" does NOT protect the money from nursing home expenses.

I told him he was being smart by planning ahead. Because of some of our federal and state regulations, it's paramount that you take advantage of legal strategies well before you get sick.

For more updates, Subscribe to the youtube channel of Rabalais Estate Planning, LLC. Also, you'll be doing me a big favor if you share this info with your contacts and friends.

Paul Rabalais
866-491-3884
www.RabalaisEstatePlanning.com
Offices all over south Louisiana

Louisiana Usufruct and Long Term Care (Nursing Home) Medicaid

We get lots of questions about whether people who own the Louisiana usufruct can qualify for Louisiana Long Term Care Medicaid benefits.

So I'm sharing information today with you from the Louisiana Medicaid Eligibility Manual regarding usufruct and Medicaid.

When someone who owns a usufruct is in a nursing home and attempting to qualify for Medicaid, the first thing you want to determine is whether their usufruct is over a consumable or a nonconsumable. 

If the person owns a usufruct of a consumable, such as money, certificates of deposit, promissory notes, bank accounts, etc., then the entire amount of the asset's value is a Countable Resource. So, if Dad died leaving Mom the usufruct of a bank account that had $200,000 in it when Dad died, then the entire amount is considered a resource of Mom. Some people mistakenly believe that since there are naked owners (typically, the children), that Mom does not have to consume these assets in the nursing home.

If the usufructuary owns the usufruct of a nonconsumable item, such as land, houses, shares of stock, etc., then the value of the usufructuary's usufruct must be determined by a Medicaid table that factors in the usufructuary's age. So, for example, if Dad died and left Mom the usufruct of a piece of land worth $100,000, and Mom is 80 at the time of her Medicaid application, then the table indicates that Mom's usufruct is worth 43.659% of the asset. So, by Mom owning the usufruct of a piece of land worth $100,000, she has a Countable Resource valued at $43,659. This is a problem for Mom. Perhaps she will need to sell her usufruct for this amount and then consume all of that money before successfully qualifying for Medicaid.

The problem here is that there is little that can be done at the last minute to solve this problem. But there's lots that can be done if you act early (ideally, at least five years before entering the nursing home. 

Find this helpful, go LIke our law firm's facebook page at Rabalais Estate Planning, LLC, and discover lots more.

Difference Between Revocable and Irrevocable Trust

People often ask me to explain the difference between a revocable and an irrevocable trust. That's a tough one because there are so many kinds of trusts and even irrevocable trusts can, within the terms of the trust, allow certain things to be revoked or amended. But here's my answer.

Most people who consider forming a trust like the concept of a "revocable" trust. The word "revocable" implies that you can amend, undo, change, alter, or revoke the trust. When someone hears that a trust is "irrevocable," they often get concerned because that implies that things are rigid, fixed, inflexible, and control is lost.

The typical "avoid probate" trust is a revocable trust. There is no requirement that the typical "avoid probate" trust be irrevocable. Your home and other assets must simply be titled in the name of your trust when you die.

Other trusts that people establish, however, are irrevocable because the trust must be irrevocable to get the benefits that the person setting up the trust is attempting to get. For example, people with large estates will often transfer a portion of their estate each year to an irrevocable trust for the benefit of their future heirs. To exclude the assets from the taxable estate, the trust must be irrevocable. Assets that you own in your revocable trust will be included in your estate for federal estate tax purposes - but this typically applies to the wealthy.

For the middle class, many people transfer assets to an irrevocable trust to remove them from their name for nursing home purposes and to achieve Long Term Care Medicaid eligibility. Assets in your revocable trust, while avoiding probate, are Countable Resources and must be spent on your care if you enter a nursing home facility.

To make matters just a little more complicated, most people who form a revocable living trust provide, in their trust instrument, that their revocable trust becomes irrevocable upon their death. People do not want other third parties to be able to change the terms of their trust after they die.

So, whether you have a revocable trust or an irrevocable trust depends on your circumstances and what you are trying to accomplish. 

Seven Common Uses For Trusts

People often mistakenly believe that trusts are for rich people. But you're about to find out that the trusts are used these days by all classes of people, and in some scenarios, trusts can benefit the middle class more than they can benefit the wealthy.

The following are seven common reasons people in Louisiana use trusts:

(1) Avoid Probate. Probably the most common reason nationwide why people use trusts. When you die with assets in your name, whether you have a last will or not, your assets are frozen. Your executor and your heirs will hire attorneys who will guide the family through the government-supervised probate (also called "Succession") process. Most people believe that this proceeding is too burdensome, costly, time-consuming, and just an overall pain in the behind. In some cases, it tears families apart. You can establish your revocable living trust and name trustees and beneficiaries of your trust, re-title assets into your trust while you are alive, so that when you die, your trustee disburses your trust assets to your beneficiaries, all outside of the government and legal system interference.

(2)  Avoid Nursing Home Poverty. The biggest threat to many people's life savings these days is not taxes or probate, but long term care expenses. With people living longer, if you own assets and need long term skilled care, you will be forced to pay for all of your own care out of your own savings until you have less than $2,000 remaining. If you work with the right people and set things up the right way, at the right time, and you get it right the first time, then you can protect your home and life savings from a forced spend-down in the event you need long term care in the future.

(3) Protect Irresponsible Heirs. Many people we work with want to leave an inheritance to their children or grandchildren, but they fear or they know that leaving a lump sum to certain individuals will enable them to squander the inheritance and spend it on the wrong things. You can establish a trust so that when you die, the inheritance for the financially immature heir can be doled out to him or her over time, or perhaps provide for a monthly stipend, or provide that someone else would have the discretion to determine when the heir is financially responsible enough to handle an inheritance. 

(4) Blended Family Situation. The biggest worry about blended families and estate planning is that when the first spouse dies, the worry is that all of the assets will go the surviving spouse. And then when the surviving spouse dies, all assets will go to the surviving spouse's children. The children of the first spouse to die won't get a penny. If you are a spouse in a blended family situation, you can establish a trust so that when you die, your assets are available for your spouse, but when your surviving spouse later dies, remaining trust assets go back to your children. This helps blended families protect assets for the right people.

(5)  Special Needs Trust. If you leave assets outright to someone who is getting government benefits, then the inheritance you leave them may get them kicked off of their benefits. By leaving the inheritance to what is commonly referred to as a "Special Needs Trust," you can arrange things in a way so that your heir continues to receive the valuable benefits, but also benefits from the inheritance that you left them the right way in a trust.

(6) Minors. Don't ever leave anything outright to a minor. When you leave life insurance or part of an estate to a minor, then that inheritance, while the child is a minor, must be directly supervised by a judge, and a judge must approve every expenditure of the inheritance on behalf of the minor, and then when the child turns 18, the remainder of the inheritance gets dumped in the child's lap. You can set up a trust so that you name a trusted friend or relative, or perhaps a company, to be the "Trustee" of a trust for the benefit of your minor child or grandchild. This will further make sure that what you leave to the minor is used for the right reasons outside of government interference, and is doled out the right way as the minor gradually turns into an adult.

(7) Avoid Taxes. Some people set up trusts to avoid taxes. The wealthy often establish trusts to move money from their "taxable estate" to an arrangement whereby assets are "out of the estate." It is important to note, however, that this estate tax affects only a small number of families. When an individual dies with an estate of less than $5.5 million, the estate is not required to file a federal estate tax return. Married couples can double the amount they can protect.

How To Transfer Assets To A Trust

Was working with a gentleman from Metairie, Louisiana. He was getting to a point in his life when he wanted to get all of his estate legal affairs in order.

He was interested in arranging an estate legal program so that his home and investments would be protected from the nursing home spend-down, and he wanted to make things easy when he passed on by enabling his children and grandchildren to avoid probate.

One of the questions he asked was, "Mr. Rabalais, how do you transfer a home, an investment account, and life insurance policies to a trust?"

I said, "Well, each asset is different." I told him that we would prepare all of the necessary paperwork to transfer his piece of real estate to his trust, and that once he signed the paperwork, we would record the transfer in the real estate records of the parish.

I then told him that once his trust is signed, he can go to his brokerage firm and request that his account title be transferred from "Joe Smith," to "Joe Smith as Trustee of the Joe Smith Trust."
He said that seemed simple enough.

He also currently owns two life insurance policies that have cash value. He did not want to be required to surrender the life insurance policies when he enters a nursing home. He correctly heard that if he went into a nursing home, he would be forced to surrender his life insurance polices and spend that cash value, rendering his life insurance policies worthless and without a death benefit.

I told him that once his trust is signed, he can contact his agent and request that ownership of the policies be transferred from his name to his trust. Easy enough.

Different classes of assets get transferred to trusts in different ways. But it's easier than most people think!

Paul Rabalais

Gentleman Shocked to Learn That With a Pre-Nup, His Assets Weren't Protected If Wife Went to Nursing Home

I was talking to a gentleman yesterday. He was a little concerned about the possibility of losing his assets to his nursing home expenses in the future. He had recently married (for the second time). Since he and his new wife each had children from their prior marriage, and they wanted to keep their estates separate, the signed a pre-nup (also known as a Marriage Contract or a Separate Property Agreement).

He felt that he and his wife's estates were in order because of their Marriage Contract. He told me, "If my wife happens to go to a nursing home in the future, I have everything protected because of my pre-nup."

Well, no so fast. What most people who remarry later in life after losing a spouse think is that if they have a pre-nup and all of the assets are kept separate - no community property, then the assets of the spouse who does not go into the nursing home are protected. But people who think that are dead wrong - no pun intended.

The Louisiana Long Term Care Medicaid Manual provides that the assets of the spouse who stays at home (even if they are separate property of the spouse who stays at home) must be used to satisfy the needs of the spouse who is in the nursing home.

So, if you are in a second (or third) marriage, and you are confident you will never enter a nursing home - and thus, never lose your life savings, know that you could still lose everything you've worked for if your spouse needs long term care. There is a legal strategy available to you to protect your (and your spouse's) assets from nursing home poverty, but you must take advantage of the legal strategy at least five years before either spouse needs long term care.