What is asset protection?
Most of us spend a good part of our lives saving for retirement or hoping to pass funds down to relatives in our later years or at death. Asset protection typically has three components. First, individuals seek to protect their assets from any creditors. Second, they try to preserve assets so these funds are not entirely spent on long-term care if they need it. Third, individuals often seek to minimize any taxes that they would have to pay on their assets, during their lifetimes or at death. Asset protection seeks to develop the best strategies and tactics to help individuals legally protect their assets in all three of these cases.
Can a trust protect assets from medical bills?
It depends. A widely held misconception says that simply placing assets in a trust will protect them from medical bills. That is typically not the case. For a trust to provide any protection for medical bills, specific criteria must be met. The person who owns the assets must give up control of the assets. Minnesota law only recently accepted that an irrevocable trust may protect assets from nursing home expenses. The law in Minnesota is still fairly new and uncertain, so clients should proceed with caution if they create irrevocable trusts.
How to protect assets from nursing home expenses?
It’s common for people to worry that all of their assets could go to covering the costs of their long-term nursing home care. An important part of elder law involves planning to protect assets to avoid this situation. This process is somewhat complex and not always guaranteed. There are people without significant assets or income who may qualify for Medical Assistance benefits without any planning. At the other extreme, wealthy people often have assets that generate enough income to pay for long-term care, so their assets are protected. It’s those of us in the middle who may benefit most from planning. There are a couple of ways it’s doing very strategic gifting to preserve assets. Also, certain spending is considered exempt, such as pre-paying for funeral expenses. Gifting should only be undertaken after a client understands all the ramifications of gifting and the consequences of what is called the “five-year lookback,” a review of how assets have been transferred or spent over five years when a person applies for Medical Assistance.
What is a five-year lookback?
As a general principle, we are all required to pay the expenses of our long-term care, to the extent possible. Medicaid, called Medical Assistance in Minnesota, is a government program that pays for certain long-term care expenses when a person does not have sufficient assets or income to cover the costs of long-term care.
Many times, people hope to transfer their assets to their loved ones rather than deplete their assets by paying for long-term care. To do so, they give away or do not have the assets or income to pay for long-term care. One strategy that people often use is to give assets to their children or loved ones during their lifetimes, with the idea that these financial resources would not be available to pay for their own nursing home care. But the Medical Assistance laws penalize a person for doing such gifting within five years of applying for Medical Assistance benefits. This means you will not be eligible for benefits, or your benefits will be reduced if you have given away any assets during the five-year period. Gifting is not to be taken lightly if an individual is likely to need long-term care within five years.
Can you protect parents’ assets from nursing home expenses?
When talking about parents’ assets, the attorney must determine who the client is. Is it the adult child or children or the parents? Often, this depends on the ability of the elderly parents to participate in the planning. The planning techniques are similar. But it is best if the parents can be involved in discussions about how to protect assets.
Can you protect assets from divorce?
There are several ways to protect assets, but none are bulletproof in the case of a divorce. For example, a parent’s best technique to protect assets from an adult child’s divorce is to leave those assets to the child in a trust and then give the child specific guidance on keeping that trust as separate property—meaning not marital property. It’s an easy statement to make, but not as easy for people to actually maintain the separation needed to provide protection. This is a topic where it’s wise to consult an attorney on best techniques and make sure parties follow through on all of the details.
What is the best asset protection?
There is no approach that is the best for everyone. Rather, the best asset protection is an option that is legally available to you and your circumstances, Consulting with an attorney is the best way to determine the best option for an individual or a family.