Irrevocable Doesn't Mean Inflexible
Margaret had enjoyed forty years in the same home near the Delaware coast when a close friend moved into a nursing home. Within two years, the house her friend had paid off and planned to leave to her children was sold to cover the cost of care. Margaret did not forget it. When she came to see us, her question was direct: "How do I keep that from happening to my family?"
The answer we discussed with her was an Irrevocable Asset Protection Trust (APT). In this arrangement, the person creating the Trust, known as the Trust Maker, transfers assets such as a residence or investment accounts into a Trust managed by a Trustee for the future benefit of designated beneficiaries. Because the Trust Maker no longer owns those assets outright, the assets are generally protected from long-term care costs once the five-year look-back period has passed. APTs are most often used by homeowners and savers who want to ensure that a lifetime of savings is not depleted by future long-term care needs. The earlier the planning begins, the more options are available.
Margaret understood the benefit, but she had also heard conflicting advice. Other professionals had told her that an Irrevocable Trust meant losing her home, her say, and her tax advantages. We hear this regularly in our community, and we address it directly, because in a properly drafted APT, these concerns are not accurate. "Irrevocable sounds like I would be giving up my house," she told us. Her APT included the Trust Maker's right to reside in the residence, and to maintain it. Nothing about her daily life would change. She would continue to live in her home, tend her garden, and host her family during the holidays.
She raised a second concern about her daughter and son. "What if things change, or if my family grows? What if I want to leave something different to family down the road?" Her APT preserved Margaret's control over changing the death beneficiaries, so her plan could evolve as her family did.
Her questions about taxes came next. We explained that her APT was drafted so that she would retain the step-up in basis, which may substantially reduce the capital gains tax her heirs would face had she simply deeded the home to them during her lifetime. Margaret would keep her principal residence exclusion as well. Because the Trust Maker would retain the income tax burden, rather than that obligation passing to the Trustee, Margaret’s tax position would remain familiar and predictable.
Satisfied with the answers she received, Margaret moved forward with a thorough plan that included her APT, a Revocable Living Trust (RLT), a Power of Attorney (POA), and an Advance Health Care Directive (AHCD). Each document was signed, and her assets were funded into the Trusts, so the plan was complete and in place long before she needed it.
More than five years later, Margaret decided the house had become more than she needed, and she wished to sell it and move closer to her daughter. Her Trustee had reservations and would have preferred that the home remain in the Trust. It did not matter. Under her APT, Margaret was the voice of the Trust, and the Trustee was required to follow her direction. Had the Trustee refused, the Trust Protector named in her APT could have removed that Trustee and appointed a willing and responsible replacement. The Trust served her wishes, not the other way around, and the sale moved forward as she directed.
An Irrevocable Asset Protection Trust is not a forfeiture of control. It is a carefully structured planning tool that protects assets while keeping the Trust Maker actively involved. Individuals who have been told that an Irrevocable Trust requires giving up their home, their authority, or their tax advantages should revisit that conclusion.
Procino-Wells & Woodland, LLC has guided Delaware families through this planning for many years, and we know how these Trusts perform in practice, not only on paper. To learn whether an APT fits your goals, call us at 302-628-4140.