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What are the Advantages of Asset Protection Trusts?

Asset protection at the core is a set of strategies adopted to manage and safeguard one’s accumulated wealth, likely from creditor claims, taxation, or large & unexpected costs. Asset protection can help insulate wealth by means of legal safeguarding, without engaging in tax evasion, fraud, or other illegal methods. The advantages of asset protection trusts lie at the center of solid asset protection strategies.

What different methods of asset protections are there?

Those with more favorable amounts of assets can employ a few strategies to ensure safeguarding, including:

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Happy Asian senior couple laughing and smiling while holding each other outdoor in the park.
  • Retirement plans
  • Annuities
  • Homesteads (up to a certain percentage)
  • Incorporation
  • LLC formation
  • Specialized insurance policies

An experienced estate attorney can legally fit each of the above strategies to ensure protection from drawdowns , as well as from the government or other debtors. Another method involves moving assets into a tenancy by entirety with a living spouse. All of these methods serve their place and purpose, but the most common method is placing your assets into a trust.

Indeed, by creating and managing a trust, many people create a well-rounded protection strategy. Given the ability to bundle assets and deem them untouchable without certain approvals and permissions, Trusts allow you to bundle assets and them them untouchable without certain approvals and permissions being met. But not all trust are creating equal. As we age, Medicaid complaint trusts can become a critical part of your wealth protection strategy.

What are Medicaid compliant trusts?

There are many kinds of trusts, and not all of them are Medicaid compliant. A Medicaid Asset Protection Trust is an irrevocable trust established by a settlor with another person serving as trustee to manage the trust.  The settlor transfers assets, which can include real property, cash accounts and investments, to the trust with the goal of avoiding the government-required five-year look-back period for all asset transfers. If the trust contains assets for five years prior to applying for Medicaid benefits, then all the transferred assets will be protected, meaning the government cannot force the settlor to spend those assets on long-term care. 

Put in everyday language, a Medicaid compliant trust allows you protect assets while still requiring for the Medicaid benefits you’ve worked your entire life to earn. Furthermore, they protect these assets from long-term care costs when done at the right time.

What is the major benefit of a Medicaid Asset Protection Trust?

Medicaid Asset Protection Trusts allow someone who would otherwise be ineligible for Medicaid to become eligible and receive the in-home or nursing home care they may need. This is possible because assets placed in this type of trust are no longer considered owned by the applicant for purposes of eligibility determination. Medicaid Asset Protection Trusts preserve the wealth one has accumulated throughout their life for one’s family or other beneficiaries, because loved ones deserve to be taken care of. These trusts also offer additional benefits including control over who inherits what, possible protection from creditors, and various capital gains tax benefits. 

How Do I Establish an Asset Protection Trust?

Not all trusts are equipped to adequately protect assets from the Medicaid five-year look-back period. It is critically important to seek the expertise of experienced asset protection specialists to assist you in establishing a trust that will protect your wealth for yourself and your family. 

When is the best time to establish an Asset Protection Trust?

The saying “better late than never” is a clever, but accurate spin for these types of strategies. The earlier you can settle on asset protection methods, the more likely you are to succeed in keeping and managing your assets when the time comes for difficult conversations around nursing home or home health care options. Remember, Medicaid planning has certain very specific look-back rules regarding assets, so the safest option would be to enlist in these strategies as soon as possible, given all uncertainties of life in general. 

Who really needs an Asset Protection Trust?

In theory, anyone could need asset protection, but those with a moderate to large net worth are more likely to be drastically affected without these strategies. Asset strategies protect just that: assets. Real estate, investment portfolios, retirement accounts, or large amounts of saved up earnings over the years can always benefit from an asset protection plan and could be the difference of saving your life’s work or losing it all. 

Rising costs of long-term care and the increasing likelihood of requiring long-term care in one’s life have made proactive planning critical to preserve assets. By acting while healthy, one can optimize asset protection and prevent assets from being depleted by paying for long-term care costs. The best way to shield assets is using a Medicaid Asset Protection Trust. These types of trusts are also referred to as Medicaid Planning Trusts, Medicaid Trusts, or Home Protection Trusts. With complicated look-back rules, ever-changing policies, and the general unknown of what is ahead, planning is the most beneficial way to make sure that what you worked hard for stays with you. So the last question is: Do you have an asset protection plan?

How much generational wealth can an Asset Protection Trust help me preserve?

Each individual’s situation is unique. The value of their home, what type of savings and other assets they have, as well as their history of gift giving all impacts how much generational wealth an Asset Protection Trust can help you preserve. For a quick idea of what type of wealth preservation you might be looking at, head over to our Free Legacy Calculator. This tool gives you a starting point to consider the advantages of an asset protection trust. For an even better understanding, give one of Elder Fighters’ Asset Protection Advisors a call to schedule a complimentary, no-risk consultation.

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