Article of the Week: Protecting Your Savings From the Devastating Cost of Long Term Care

Dagmar M. Pollex, Esq.
The Law Offices of Dagmar M. Pollex, P.C.
Braintree, Massachusetts  02184
781-535-6490

Member of the national ElderCare Matters Alliance, Massachusetts chapter

Today, the risk of losing your life savings to a long term care illness looms as the largest threat to your future security. That’s why one of the biggest questions and concerns many people have about their lifetime financial security is what would happen if they suffer a long term disabling illness, such as Parkinson’s disease or Alzheimer’s.

The reason for this concern is clear. The cost of long term care in Eastern Massachusetts, is often $10,000.00 to $13,000.00 a month and increasing rapidly. Medicare does not cover this cost so without long term care insurance, it wouldn’t take long for most families to lose all of their hard-earned life savings.

Planning ahead by using an irrevocable trust to preserve some of your assets helps you avoid the devastating loss of your life savings to a catastrophic illness. This type of trust which is sometimes referred to as a Long Term Care Asset Protection Trust is also called a Medicaid Trust or an Income Only Irrevocable Trust.

The use of this kind of planning has increased in the last few years, especially since changes in the law enacted in 2006 eliminated last minute planning opportunities. As a result, families now need to plan before the need for care arises.

Many people have heard about this kind of planning but want to know more about how it works, when it should be used and the practical differences between an irrevocable asset protection trust and a revocable trust.

The Long Term Care Asset Protection Trust is a legal planning tool that is designed to protect some or all of your assets in case there is a need for an extended period of long term care in the future.

As the name implies, these trusts are irrevocable and require you to give up a certain degree of control over the assets transferred to the trust.  In exchange for protecting your assets from the astronomical cost of nursing home care, Long Term Care Asset Protection Trusts have some conditions attached to the use of the assets in the trust.

Under the terms of these trusts, the transferor (“grantor”) can receive all of the income produced by the assets in the trust for the grantor’s lifetime.  By transferring assets into a Long Term Care Asset Protection Trust, you can still reserve some control and retain some interest in the transferred assets – advantages that are not available when transfers are made outright to individuals. 

You receive the income from the trust assets, but not the principal. If the grantor places the grantor’s home into the trust, then the trust agreement can specifically provide for the grantor to continue to reside in the home for the grantor’s lifetime. 

Because Long Term Care Asset Protection Trusts are irrevocable, the grantor cannot revoke the trust and reacquire the assets; therefore, the assets are protected for long term care Medicaid eligibility purposes.

Long Term Care Asset Protection Trusts can be written to provide income tax advantages, and to allow the grantor some flexibility to change his or her beneficiaries. The trusts can also be drafted to allow the trust assets to obtain a “step-up” in value so your beneficiaries will not have to pay additional capital gains tax.