Despite the widely-held perception that trusts are complicated legal documents requiring high-priced lawyers in fancy downtown corner offices and that their use is reserved for the very wealthy, trusts are actually a very important tool in the arsenal of an elder law attorney, and are often used to assist families with even modest assets.
A trust is, simply put, a contract between the creator of the trust (called the ‘grantor’) and the person to whom property is entrusted (called the ‘trustee’). The grantor provides instructions to the trustee as to who gets to benefit from the trust property, and under what circumstances they benefit. Those who are named are called ‘beneficiaries’. Think of a trust as a treasure chest, and the grantor merely transfers her assets – her bank accounts, her investments, and her home – into this treasure chest. The assets are no longer owned by her – they are owned by her trust. And depending upon the type of trust, she may still enjoy full control, full access and full benefit from the assets.
A trust can either be created during the life of the grantor (sometimes called a ‘living trust’ or ‘inter vivos trust’) or it can be created by one’s Last Will and Testament (called a ‘testamentary trust’). The testamentary trust does not take effect until the creator actually dies; however, it is an effective way to provide asset protection to a person's loved ones, and to allow the legacy of an inheritance to last longer than if the assets were simply ‘dumped’ on the next generation.
A living, or inter vivos, trust can either be revocable (meaning that you can terminate or change it at any time) or irrevocable. A ‘Revocable Living Trust’ is often used to provide better planning of one’s assets in case of incapacity, to avoid the legal process known as ‘probate’ and, as with a testamentary trust, to better protect an inheritance for a surviving spouse, children and grandchildren. However, a revocable living trust does not provide the creator of the trust with any protection for their assets during their own life.
Sometimes generically called an ‘Asset Protection Trust’, an irrevocable trust can be used to help a family protect a lifetime of savings from the potentially exorbitant cost of a nursing home, to ensure that a healthy spouse can maintain their standard of living, to protect the family home from recovery by the Commonwealth upon the death of a nursing home resident, or to assist a Veteran in obtaining important – and very much earned – government benefits to help defray their medical and other long-term care costs.
Control of Assets
Though it is irrevocable, an asset protection trust, if properly designed by a qualified elder law attorney, can still allow the creator to maintain control over, and in some instances even use of, the assets transferred into the trust (including their home). The caveat is that once transferred into this trust, legal title to the assets can never be transferred back to the grantor, and the ‘principal’ or ‘corpus’ of the trust cannot be given to the grantor under any circumstances. The reason for this is that if the grantor can get these assets back, then those assets will be considered available for their care should the nursing home come calling. So who is going to benefit from this type of trust? Typically it is children, grandchildren and other loved ones are named as beneficiaries of this type of trust.
The Look Back Period
One additional requirement for the effective use of an irrevocable trust in the area of Medicaid is that it must be created five years prior to any need for long-term, skilled nursing care. When a person seeks to obtain Medicaid to pay for their long-term care, the government will “look back” five years to see what, if anything, the applicant has given away (this is known as the ‘look back period’). A gift would include transferring assets into one of these asset protection trusts. Therefore, it is very important to consider this strategy while still in relatively good health to ensure that asset protection is achieved.
How We Can Help
If you would like to learn more about the benefits that a trust can provide you or your family, make an appointment with one of the attorneys at Zacharia Brown today.