Asset Protection Trusts: Buyer Beware!

As the name indicates, an “Asset Protection Trust” is designed to shield assets from various risks to your wealth.  These trusts were traditionally used as tax protection tools for the extremely wealthy.  They are still used by the ultra-wealthy, but also are now utilized more than ever before by the lower and middle-class.  This post is designed to warn you about the various pitfalls associated with such trusts and how you can avoid them.

In the last several years, a certain type of asset protection trust has become a more well-known and useful tool for those who desire to protect assets from the high costs of nursing home.   The thought behind the Asset Protection Trust is to “spend down” ahead of time in order to qualify for Medicaid or the VA to assist with long-term care payments when the time arises.  The process goes as follows:

  1. Create asset protection trust
  2. Transfer certain assets to that trust
  3. If you’ve done steps 1 and 2 properly then the assets in this trust do not count against you when applying for Medicaid for the nursing home.

Let’s boil it down to the two most important questions:

  1. Are Medicaid Trusts Appropriate for Everyone?
    No.  Several considerations must be addressed before simply deciding to proceed with such a trust.  They include:

    • Will I need care in the next couple of years?
    • What is the makeup of my assets? Home, IRA/retirement, annuities, checking and savings, etc.
    • What type and amount of income will I have in retirement?
    • How much income will I have if my spouse dies?
  2. How do I find out if it is appropriate for me or a loved one?
    By far the best way to handle this is to visit a qualified Michigan elder law attorney.  An experienced attorney will ask the right questions before making a recommendation.  If an asset protection trust is right for you, you’ll generally know for yourself after an effective conversation.  Contact us today to schedule your complimentary consultation.