What Do You Have to Lose?


What Do You Have to Lose? Contributed by: Laura McCreary, Estate Planning Department Manager

Many clients come to us interested in planning ahead for the possibility of needing long-term care in the future. Their interest in this type of planning is related to the fear of long-term care costs. One of the pre-planning tools we use is the Irrevocable Asset Protection Trust. When this trust is used correctly, it allows assets inside the trust to be protected from the cost of long-term care. This trust is designed by the client, also known as Grantor, and managed by the person(s) the client designates as Trustee(s). In short, the mechanics of this trust require the Grantor to release control of the assets inside this trust and extend that control to the named Trustee. The benefit to that exchange in control is the protection of the assets.

In most cases, it makes sense to place real estate into this type of trust because it’s typically a large value asset, and because day to day it doesn’t feel any different to live in the home. The trust specifically outlines the Grantor’s continued right to live in the residence, pay taxes, maintain the property, etc. An example of a time that the client would feel the loss of control is if the Grantor wanted to sell the property. In that case, the Trustee would need to be involved with signing sales agreements, signing settlement papers, and opening a bank account for the proceeds from the sale. Even in this example, the Grantor is still the voice behind the decision making.

Upon proposing this document be incorporated into a client’s overall estate plan, some clients respond asking, “What if I never need long-term care?”

An Irrevocable Asset Protection Trust provides numerous other benefits. Namely, it includes language that describes how the Grantor wants assets to be distributed at death, the named Trustee(s) can support the Grantor during incapacity or illness, and the assets within the trust avoid the lengthy and expensive process of probate. Families invest in estate planning to achieve these benefits alone, creating the opportunity to view protecting assets from long-term care costs as a significant bonus, rather than an added expense.

On the other hand, what happens if a person needs long-term care, and an Irrevocable Asset Protection Trust has not been created and properly funded? All assets would be available to spend on the long-term care that is needed. Sadly, for too many families, this results in a depletion of life savings over the last couple years of life. It’s unfortunate to think of the wants and needs a person foregoes, but most clients explain that their larger concern would be not having a financial legacy to leave to the people and charities they love.

Back to the original question, what do you have to lose? If you do nothing, potentially everything.