The Benefit of Five-Year Trusts

For older people facing medical challenges, the preservation of assets becomes a higher priority.

Long term care costs are stressful to think about and can financially ruin a family facing nursing home placement. The exploitation of the elderly in today's day and age is on the rise and another reason to consider the use of a trust. Five-year trusts can help alleviate these problems.

Creating trusts may limit the stress in the future by effectively addressing Medicaid and estate planning needs before there is a crisis. The five-year trust or a Medicaid asset protection trust is an irrevocable trust. Its primary purpose typically is to allow an individual or couple to transfer assets to the trust but retain the income. The goal is this type of trust is to qualify the individual for Medicaid five years after its creation. The trust can continue for the benefit of the individual until his or her death, and then for the benefit of the spouse (if living). In the end, the remainder beneficiaries receive what is left in the trust.

Obviously, the greatest hurdle to overcome in the creation of these types of trusts is convincing the potential client that now is the time to give up control of his or her assets. What to place in trust is as critical as how much to place in trust. Decisions about preserving the family home may be based more on sentimental reasons. Transferring title to their residence and/or a vacation home may be more realistic than transferring all cash assets to a trust. By doing so, while leaving cash assets intact, the person is able to shield significant assets, while simultaneously retaining assets and providing sufficient income from those assets to pay for expenses for the next five years.

The risks of any Medicaid trust is that medical care is needed before the trust is five years old and the assets are now unavailable to the person when he or she needs them most. When contemplating doing this type of trust a client must fully understand what may happen if the trust is not created in sufficient time to meet the five year look back under Medicaid.

If you are interested in more information about asset protection trusts, you should contact an experienced estate planning attorney. The attorneys at Weiss, Tom & Trapanese, LLC will assist you in formulating a trust that suits your needs.