Long Term Care Expense Should be Part of Your Retirement Plan
You have done everything right. You saved your entire life putting money away for your retirement years. You have been meeting with a trusted financial advisor for years and established a target savings that will see you through your retirement years comfortably. Finally, you reach the designated time and you pull the trigger retiring, looking forward to living a more relaxed lifestyle. All of a sudden, your world is turned upside down as you find out that you or your spouse have Alzheimers and will be needing long-term care. When you start learning about the $7,500 to $10,000 per month in costs you are dumbfounded. St. Charles Elder Law Attorney Stephen Jones knows all too well how this can happen. Jones notes, “one of the cases I will never forget is a 59-year-old retiree. He had done everything perfectly to retire and live comfortably with his family. The only thing he didn’t plan for was developing early onset Alzheimers. The perfect plan became a potential nightmare for his wife and college age children.”
As author Chris Berry notes in his recent Kiplinger article, retiring successfully is more than merely hitting a target number but must also take into account protecting that savings from “retirement risks, such as taxes and long-term care costs” https://www.kiplinger.com/article/retirement/T036-C032-S014-how-can-a-trust-help-you-avoid-nursing-home-costs.html. Preparing for long-term care costs is something that gets left behind in many retirement plans. Most retirees have a goal amount of assets to accumulate and expend all of their effort and attention on achieving a number. Long-Term Care Insurance can be a useful tool to protect against the financial impact of long-term care but for many that is an expensive item that makes attaining their desired savings more difficult, if not impossible. “In our practice we look at long-term care insurance as a wonderful tool for clients. Unfortunately, most of our long-term care clients do not have such insurance in place,” noted O’ Fallon Elder Law Attorney Rosalind Robertson.
Irrevocable Trusts May Offer a Solution
One tool that is employed to protect assets from the impact of long-term care is an Irrevocable Trust. Irrevocable Trusts go by many names but the actual name is less important than the language used in the trust. Use of the Irrevocable Trust is designed to deplete “your estate of assets, a move that eventually will allow you to use Medicaid assistance” to pay for your long-term care rather than your own assets https://www.kiplinger.com/article/retirement/T036-C032-S014-how-can-a-trust-help-you-avoid-nursing-home-costs.html. Each state implements Medicaid differently, so the amount of assets that you are allowed to retain and use the Medicaid system is different between Missouri and Illinois.
Something both states have in common is the imposition of a five -year look back period. At the time you are seeking Medicaid assistance you must go back for a five-year period and supply comprehensive financial information. The state Medicaid agency is looking for any gifts or transfers for less than fair market value that have taken place in the five-year look back period. That means the Irrevocable Trust strategy has to be in place for some period of time to achieve maximum success. An Irrevocable Trust will not allow you to protect 100% of your assets if you only recently found out your loved ones was going to need long-term care. It should be noted, for purposes of clarity, that you can still protect a significant amount of your assets even if you are currently residing in a nursing home but that is a discussion for another blog. Assets that have been in the Irrevocable Trust for five (5) years will be treated as if they never existed. Also, asset appreciation inside of the trust during the five (5) year period is not relevant to a Medicaid determination. Thus, assets can be placed into the Irrevocable Trust with the intent that they are invested to grow.
Change in Control that Requires You to Trust Someone
Using an Irrevocable Trust does have certain technical requirements and those differ by state. In Missouri and Illinois, we do not recommend that the Trustee of the Irrevocable Trust be the person that is also creating the Irrevocable Trust. This means in order to use an Irrevocable Trust strategy you have to be comfortable with giving upon some control. You can still be informally involved with your Trustee in the decision-making process, but technically the final decision rests in the hands of the Trustee. This makes the design of the Irrevocable Trust a critical element. You must have individuals that you trust that are willing to serve as your Trustee. If you don’t trust anyone enough to serve as your Trustee, then Irrevocable Trust planning would not be an appropriate legal strategy for you and your family.
Proper Guidance is Essential to Successful Implementation
Irrevocable Trust planning is not something you should attempt through legal zoom or without proper guidance. Not only does your trust have to contain the correct language to comply with your respective state rules, someone needs to be prepared to deal with the Medicaid application in a manner that ensure the Irrevocable Trust is properly reported. Additionally, not all assets can go into an Irrevocable Trust. IRAs, 401ks and other tax deferred accounts cannot be placed into an Irrevocable Trust without triggering the immediate recognition of income on any amounts transferred out of the tax deferred accounts https://www.kiplinger.com/article/retirement/T036-C032-S014-how-can-a-trust-help-you-avoid-nursing-home-costs.html. While tax deferred accounts would not normally be good candidates to retitle into an Irrevocable Trust, after tax accounts and real estate are often ideal candidates for inclusion in such a trust.
If you or your family have questions on how an Irrevocable Trust could be used to protect your retirement, contact the experienced St. Peters Elder Law Attorneys at Jones Elder Law. Get the information you need to make crucial decisions to preserve, protect and prolong what you worked a lifetime to save. If we can help guide you, contact our St. Charles Elder Law Firm at (636) 812-2575 and ask to schedule a call or virtual consultation, what we at Jones Elder Law call a Vision Meeting http://joneselderlaw.com/vision-meeting/. For your safety and ours we have developed the Minimal Contact Planning process for use while the Covid-19 virus remains a concern.
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