The Elrod Firm

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Is It Time For An Estate Planning Upgrade?

As Jane sat in the conference room of her Elder Law attorney’s office, her frustration grew with each passing minute.  She came in simply to get a little clarification and peace of mind about how her existing trust worked because her husband, George, had recently been diagnosed with dementia.  Instead, she received some rather unexpected and disturbing news.

Jane started the meeting by explaining to the Elder Law attorney that she wanted to make sure her estate planning affairs were in order, just in case her husband’s condition worsened to the point of needing long-term care.  She explained to the attorney that she was sure everything was set just as it should be.  Just a few years ago she and George visited a large estate planning firm to have a full plan written up.  The attorney at that firm set George and Jane up with a revocable living trust and explained that, by transferring all of their assets to this trust, everything would be “protected.”

Jane, however, apparently misunderstood what this prior attorney meant by “protected,” and she neglected to ask the key question: protected from what?  Almost any trust, when used properly, will protect assets from probate.  That’s one of the main reasons people set up trusts.  Some trusts can provide added protection when it comes to taxes as well.  On the other hand, most trusts provide absolutely no protection from what many clients fear most – the rising costs of long-term care.

Jane’s Elder Law attorney explained that, even though she and George have had their assets set up in a revocable living trust for several years, they have done nothing to plan for the potential need for long-term care.  There are a number of benefits available to individuals who need the services of in-home caregivers, assisted living facilities, and nursing homes.  But most of those benefits have asset restrictions.  Putting assets in a revocable living trust does nothing to help meet those asset restrictions.  In fact, under the rules of those benefit programs, assets in a revocable living trust count against an applicant just as if those assets were titled personally in the applicant’s name.  In other words, putting assets in a revocable living trust does nothing to protect those assets from the costs of long-term care.

Jane was ready to storm out of the Elder Law attorney’s office and drive straight to her prior attorney to demand an explanation.  Why in the world would he have recommended a revocable living trust to them when it offered no protection against long-term care costs?  But Jane’s Elder Law attorney calmed her down and explained that, at the time she set up her plan with the prior attorney, her husband had not been diagnosed with dementia, and long-term care was much less of a priority to the family.  The revocable living trust was a great option at the time.  Most importantly, it ensured that the kids would not be stuck in probate when something happened to George and Jane.  It’s not that they set up the wrong trust several years ago, considering their different circumstances at the time – it was just time to consider an estate planning upgrade.

The Elder Law attorney explained that all trusts are not created equal.  Some trusts can shelter assets from the rising costs of long-term care.  Some trusts do help families qualify under the asset restrictions applicable to benefits designed to help families pay for caregivers, assisted living facilities, and nursing homes.  You just have to use the right trust.

Jane listened as the Elder Law attorney explained the differences between a revocable living trust and an asset shelter trust.  The most obvious difference, he explained, is that asset shelter trusts are irrevocable, meaning they cannot be changed or revoked after creation.  This does not mean that assets held inside these trusts cannot be changed, spent, or reinvested.  It simply means that the dispositive terms of the trust cannot be altered over time.  Another key difference is that the grantor, who created the trust and might need long-term care benefits, cannot be trustee in charge of managing the trust.

When Jane heard this, she understood what the Elder Law attorney was getting at when he suggested that they probably had the right trust at the time.  Her husband would not have been interested in setting up a trust in which he was not the trustee in charge of managing the trust assets several years ago.  But now, after the dementia diagnosis, they would be much more willing to consider such an arrangement.  After hearing the whole explanation, Jane agreed – it was time for an estate planning upgrade.

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