Stay ahead of rising long-term care costs to ensure there's something left to inherit.
A standard estate plan often falls short for one important goal.
An Asset Protection Plan can do everything an Estate Plan can do – protect clients’ families from probate and keep the hands of third parties (creditors, spouses, and litigation opponents) off the inheritance they want to pass on. But an Asset Protection Plan meets one other goal that is extremely important to many of our clients. It can protect assets from the rising costs of long-term care that can be so devastating to families and their life savings. A standard Estate Plan cannot protect assets from long-term care costs, like nursing home, assisted living, and home caregiver fees.
One Asset Protection Planning tool we often use is the Asset Protection Trust. The Asset Protection Trust offers most of the benefits of the Revocable Living Trust, plus it protects from long-term care costs any assets title in the name of this Trust.
The added benefits of an Asset Protection Trust are obvious, but there are some aspects of the Asset Protection Trust that are less desirable to some clients. First, the Asset Protection Trust must be irrevocable, meaning clients cannot amend or modify the terms of the Asset Protection Trust in the future. However, this does not mean the assets titled in the name of the Trust cannot be rearranged, sold, or changed; it only means the actual terms of the Trust cannot be changed.
Also, unlike the Revocable Living Trust, our clients cannot serve as the trustee or be a named beneficiary of their Asset Protection Trust. They must name some other trusted person, possibly a child or other family member, to these roles. This means our clients do not have direct control over or access to the assets titled in the name of an Asset Protection Trust; that is how the Trust serves as a shelter for assets our clients seek to protect. The assets are not, however, locked down. The named trustee may freely access trust assets when needed.
Setting up an Asset Protection Trust is not the same as putting assets directly in the name of our clients’ children, something we usually advise against for liability, tax, and other reasons. The protected assets titled in the name of this Trust no longer belong to our clients, but they do not belong to our clients’ heirs yet, either.
It is important to note that in many cases, an Asset Protection Trust must be established five years before the need for long-term care arises to maximize asset protection under an Asset Protection Plan. Asset Protection Planning with an Asset Protection Trust is not something clients can do last minute, when long-term care needs have already arises or are just around the corner.
Whether a client chooses to pursue an Estate Plan or an Asset Protection plan depends primarily on that client’s priorities. If protecting assets from the costs of long-term care is the primary objective, then an Asset Protection Plan is often the best option. If flexibility and direct control are more important to the client, then an Estate Plan might be better.
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