A trust could save you $120,000 or more

submitted by Richard P. Wilson, Esquire,

What can you buy for $120,000? 

  • A luxury sports car;
  • A Hermes handbag;
  • One year in a nursing home.

That is a little shocking, however, the average daily cost in a nursing home is $330 as determined by the state of Pennsylvania.

So I may say that it is never going to happen to me because I am a healthy person.

How can you be so sure?

Once you enter a nursing home, and after a short period of time, you’re required to pay for the services until you have exhausted your assets and are left with less than $10,000.

You may begin to think about giving everything to your children now, being mindful of a five year look back on transfers or gifts, when entering a nursing home.

You can be disqualified for receiving Medicaid benefits because of gifts made less than five years ago.

You then think you’ll be eligible for Medicaid benefits once five years have elapsed.

Giving outright to your children could be risky for the following reasons, they:

  • Can die before you;
  • Can get divorced;
  • Can spend the money or gamble it away;
  • Can give it away;
  • Can be sued;
  • May be in debt;
  • Can become disabled.

Even if you would qualify for Medicaid benefits in the future, you are now at risk for your own future.

Say, for example, you give your home to your children and one of the circumstances listed above happens, you could be in jeopardy of losing it.

There is a better tax outcome if you still own a home when you die and the children inherit your estate.

The remedy is an irrevocable trust to transfer your assets to. It has to be irrevocable because you are considered to be owner of a revocable trust.

The principal of the irrevocable is not available to you. Once you have transferred assets to the irrevocable trust, you no longer own them but are entitled to use them for as long as you live.

Also, if you transfer investments into the trust, the income will still be payable to you.

This is known as a grantor trust. The trust terminates upon your death and the remaining income and principal is distributed to your children.