Many of my clients visit me at the time of retirement. Usually, this visit is to update their estate planning documents such as Powers of Attorney and their Last Wills & Testaments. Frequently, though, they also want to know whether they should begin asset protection in anticipation of needing long-term care. Are they old enough to consider starting such a plan? Whether they are the “right” age depends on many factors.
Asset protection involves sheltering assets such as savings or a home from the cost of long-term care, such as nursing homes. Many clients want to shelter their assets from the potential cost of care and ask if they should be moving them out of their names and giving them to their children. Transferring assets outright to children involves a lot of risks. An alternative to giving assets outright is to transfer them into an irrevocable Asset Protection Trust.
Asset Protection Trusts that meet certain requirements can shelter assets from the cost of long-term care. They make the assets unavailable in the event a person needs to apply for Medical Assistance (Medicaid) to pay for nursing home care. These trusts must be funded at least five (5) years prior to application for Medicaid. The assets in the trust would not be considered when determining eligibility for benefits.
Some of the factors that need to be considered before engaging in asset protection include:
1. Does your financial picture justify engaging in asset protection?
When applying for Medical Assistance, the government will ask how much you have in savings. This can include bank accounts, investments, and stocks as well as retirement
accounts. The more assets you have, the more you may have exposed to pay for your care. Some people are self-insured, as they have sufficient resources to pay for their care and do not wish to engage in asset protection. Others have limited resources and will be eligible for Medical Assistance without the need for asset protection. The individuals who fall in-between are the ones facing the need to spend-down much of their savings before they would become eligible for assistance.
2. Are you retiring in the state of Pennsylvania?
If you plan on relocating to another state, you are advised to meet with an elder law attorney in that state before engaging in asset protection. For those of you retiring out state, you should hold off on engaging in asset protection so that you can meet with an attorney from the state of your retirement residence before creating an asset protection trust or engaging in similar asset protection.
3. Do you plan to join a retirement community?
Are you going to reside at home for the rest of your days or are you going to retire to a continuing care retirement community? The location of your retirement will play a role in determining if asset protection is right for you. Spending your days in a continuing care retirement community (CCRC) may conflict with the plans for asset protection. These retirement communities require a substantial buy in and monthly payments. Typically, clients considering a move to a CCRC will want their savings available to use for entrance fees and expenses of the retirement community, rather than unavailable in an Asset Protection Trust.
4. Are you comfortable with giving up control and ownership of assets?
When using an Asset Protection Trust, you are giving up ownership and some control. Are you ready to do so at the age of retirement? Or does some time need to pass before you are comfortable with engaging in such a plan? Many of my clients delay engaging in asset protection until they are comfortable with the idea of transferring ownership of assets like a home to an Asset Protection Trust.
5. Be aware of the five-year look-back period.
This is a government rule associated with Medical Assistance eligibility. You must transfer or shelter assets at least five (5) years before you apply for Medical Assistance benefits in order to fully protect them. Transfers made within the five years could affect your eligibility for benefits. Therefore, delaying asset protection until such time as you become ill will not allow you to shelter assets as effectively as when you were healthy.
There is no exact age for asset protection. Most of my clients engage in this sort of planning after retirement but before their health begins deteriorating. The ages tend to range between 70 and 80 for most of my clients. It would be nice to be able to pinpoint the “right time” to take action, but it’s different for everyone.
