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The Montana Estate Lawyer

Friday, May 4, 2018

The benefits of using an irrevocable asset protection trust for long-term care planning

Last week we discussed the continuing rise in long-term care costs and how long-term care insurance may be able to help make long-term care more affordable.  This week we’ll focus on the estate planning strategy that employs an irrevocable asset protection trust.

An irrevocable asset protection trust can be an effective estate planning tool for long-term care. The trust can be set up in conjunction with or as an alternative to long-term care insurance, allowing individuals or married couples to transfer some assets into the trust where the assets can be held and managed by the trustee throughout their lifetime. The remaining assets can then be transferred to the heirs of the trust at the time of their death.

Of course, it’s important that the client and the drafting attorney understand the benefits and implications of the trust, such as the potential impact on Medicaid eligibility, and how to set it up to accomplish long-term care planning goals.  These need to be carefully considered in order to ultimately decide if establishment of this type of trust is right for each individual client.

The irrevocable trust can be drafted a number of ways to take advantage of tax benefits. It can be drafted in a way where all income from trust assets are taxed to the grantor. You can also draft it to protect a step-up in basis at the death of the grantor for assets that are placed inside this trust.

It also provides numerous advantages over outright gifting which leads to tax advantages that are associated with this type of trust that you simply can't get by making a gift outright.

Finally, an asset protection trust protects assets for the beneficiaries who ultimately receive those assets upon the grantor's death. This is like an enhanced type of estate planning but is geared toward our senior population and their loved ones.

Jon


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